* Accor (ACCP.PA): Easier to dispose than to acquire
* Strategic flip from disposals/capital returns to increased asset intensity
Accor‟s new strategy recognises the previous plan to exit owned/leased assets was
unworkable and risked giving away value. Its new internal propco enables it to retain the
benefit of turning around underperforming assets, but does not address the legacy of previous
sale and leasebacks. This can only be done through asset repurchases, meaning investors
are essentially now reliant on Accor‟s acquisition rather than divestment skills.
* Internal split brings discipline and showcases growth in HotelServices
Management hopes that the Services business will be faster growing and deserving of a
multiple in line with its asset-light peers. The pipeline of 116k asset-light rooms suggests 25%
growth in system size and Accor is well placed to lead the structural growth in European
franchising. Our main reservation is that the market has historically undervalued hybrid
assets, meaning that a demerger may be necessary to unlock the sum of the parts – this is
not practical until the contribution from leased assets has been reduced from 46% to less than
25%, which will take several years to implement.
* Near-term RevPAR outlook dominated by France; VAT impact will weigh
Accor‟s share price has been strong (+8% YTD relative to E300) as investors look for cyclical
European exposure. However, Accor is not a diversified European bellwether as 34% of
revenues come from France where the hotel cycle is yet to improve. Notably, the risk from the
recent increase in VAT on French hotels (from 7% to 10% on 1 January) creates a headwind
to pricing power that is likely to be evident in Accor‟s 1Q results on 17 April.
* 2014E P/E of 24x, 18.1x blue sky EPS and 3x BV are full, in our view
From a valuation perspective, we believe the market is already pricing in the earnings upside
from the opco/propco split. Our SOTP based on blue sky 2016E EBITDA gives our new target
price of EUR 35.40. Valuing the property business as a REIT based on an NAV multiple of
1.4x and dividend yield of 5.1% gives a fair value range of EUR 39.3-42.3. This best-case
scenario is virtually priced into the shares (7% upside to midpoint) despite being an uncertain
outcome. Please read on for more details.