Propco spin-off in focus as geopolitical headwinds ease; remains Buy
Source of opportunity
December French travel data was strong (Paris airport passengers +9% yoy) and RevPAR is growing, as security concerns ease. This has allowed investors to refocus on Accor’s plan to have external investors hold the majority of the capital in 90% of its propco (“Booster”; 48% of 2016E EBIT). We believe the spin-off could provide: (1) value crystallisation: Our SOTP implies upside to current levels; and (2) cash optionality: We assume Accor would have €3.8 bn of cash to reinvest or return to shareholders if it sells 50% and increases leverage. Our SOTP value/share is €47, or €52 in a bull-case scenario (80% sale of Booster at Accor’s Jan-17 external property valuation). We reiterate our Buy.
Catalyst
(1) Accor will provide an update on the intended use of cash proceeds from its planned propco spin-off at its FY16 results (February 22). We would view significant cash returns to shareholders post the deal positively.
(2) Hotel sector M&A, particularly post Accor’s partial propco spin-off, as it becomes asset-light, reducing operating leverage and capital intensity.
Valuation
Accor’s valuation fails to adequately reflect the potential for value crystallisation through a partial spin-off of its propco, in our view. Our SOTP valuation of the propco (€6.1 bn) implies a CY17E EV/EBIT of 13.0x for the opco (IHG at 14.8x), or
just 10.5x if Accor were to achieve its estimated propco asset value in the spinoff (€7.3 bn). Our price target reflects optionality on the deployment of cash proceeds post the planned spin-off (we assume €1.9 bn of cash to shareholders,
18% of market cap), but we do not incorporate this in our estimates. Our €47 SOTP-based price target implies 23% upside and includes a 15% M&A weighting at a multiple of 13.5x 2018E EV/EBITDA (in line with sector activity).
Key risks
Weaker-than-expected RevPAR growth from exogenous events, increased Airbnb penetration, weaker macro, dilutive M&A, FX translation.