Page 6 of the report comment on potential Marriott/. Accor deal
further outperformance driven by earnings upgrades given the rapid improvement in market
conditions in both the US and Europe. Our top picks are Accor, Rezidor and Whitbread.
* Further to go
Demand trends are improving, supply growth is limited and there is upward pressure on pricing –
the near-term prospects for hotel sector growth are strong. These dynamics, coupled with
optionality from M&A, are supportive for sector valuation.
* Wake up call on OTA
Online Travel Agencies (‘OTA’) represent a long-term threat to industry returns. In response to this
challenge, we expect the leading hotel groups to undertake a new phase of IT capex, marketing
partnerships and potential mega-mergers. We review this industry disruption in detail, highlighting
the risks to franchisors.
* M&A: the next big theme
We believe the combination of the OTA threat, slowing market growth (given occupancy levels are
already close to or above previous peaks) and more challenging conditions in Emerging Markets is
likely to drive a new wave of sector M&A. We see Accor/Marriott as the most likely mega-merger.
(+): Rezidor, Accor, Whitbread, Expedia
We favour hotel groups with the highest operating leverage, strong pricing power and attractive
valuation attributes. This drives our Outperform ratings for the initiation coverage of Rezidor
(SEK53), Accor (TP EUR46), Whitbread (TP GBP50) and Expedia (TP USD91).
(-/=): IHG, NH Hoteles
With valuation less attractive, M&A less likely or partly priced in and amid the rising threat of OTA,
we take a more cautious stance on IHG (Underperform, TP GBP22) and NH (Neutral, EUR4.5).