Mantra Group Ltd (ASX: MTR)

Low 1H FY18 Profit: Edging slightly down about 0.5% in last one month (as at February 14, 2018), hotel operator, Mantra group has now reported that its 1H FY18 underlying profits have lowered by 6.3% to $27.6 million in the December half year period while underlying earnings slipped $2.1 million, i.e., 3.6% in the six months to $56.6 million. This has come at the back of tougher than expected trading conditions in key regions including the US. Particularly, softer trading conditions were seen in US operations and Melbourne and Perth CBD locations. The group’s profit result was also impacted by transaction costs associated with a business combination of $0.7m in respect of the Art Series Hotel Group acquisition and costs of $2.0m in respect of the proposed acquisition by AccorHotels.
 
On the other hand, the group reported record first half revenue of $366.2m, an increase of $10.1m or 2.8%, due to continued growth in domestic and international travel and record RevPAR (Revenue Per Available Room) of $145.07. Another key highlight of the result was sale of 1.97 million rooms in the first half of the financial year, which is the highest ever for the period. Moreover, available rooms rose up by 2.6% in the six-month period with acquisition of ten new properties, including seven from the acquisition of the Art Series Hotel Group. These include Mantra Sydney Airport Hotel, Mantra Macarthur, Canberra, and FV by Peppers, Brisbane.
 

1H FY18 Performance (Source: Company Reports)
 
Late last year, Mantra entered into a binding agreement with Accor (AccorHotels) under which the latter will acquire all of the shares of the Company at a price of A$3.961 cash per share (on a fully diluted basis), including a potential special dividend, by way of a scheme of arrangement. A Scheme Implementation Agreement (SIA) has been signed to give effect to this Transaction. Under the terms of the Scheme, cash consideration represents an implied market capitalisation of A$1,182.2 million.

All in all, not a very encouraging result before the sale of the hotel operator to French giant Accor that is expected to be completed by June 2018. The group also did not declare any dividend for the half year. Meanwhile, Commonwealth Games in Q4 of FY2018 is expected to give a boost to H2FY2018.

Looking at the financial performance and price movement, we have a “Sell” recommendation on the stock at the current price of $3.84

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