easyHotel's bid to paint budget hotel market 'orange' remains on track

Taking a bet on hoteliers’ stocks is always a tricky one. Some argue that in the age of austerity, budget hotels are more bankable than their all-frills counterparts. If that chimes with your way of thinking, then London-listed hotelier easyHotel (LON: EZH), a sister company under the same orange-coloured brand umbrella as FTSE 100 airline easyJet (LON: EZJ), might well be worth a look. 

In fact, trading at 125.25p (at the time of writing), the stock is exceeding market expectations and did reach an all-time high of 128p in May. The reasons are clear from the headline financials. For instance, easyHotel’s profit before tax rose 52.5% to £0.09m for the six months to the end of March 2018, following strong growth from the group's owned hotel portfolio and franchised hotels in recent months. 

Total revenue grew by 51.7% on an annualised basis to £4.76m for 12 months to March, up from £3.14m in the same period a year ago, while adjusted earnings (EBITA) rose 51.0% from £0.65m to £0.98m. However, the benchmark that really stands out – and any potential investor should pay particular notice to – is REVPAR or revenue per available room.

Taking franchised hotels out of the equation, easyHotel's owned hotels portfolio delivered REVPAR growth of 11.2% for the six months to end-March; an uptick from £32.90 to £36.60. That means easyHotel beat its competitive set of rivals by an impressive 11.7%, according to hotel data benchmarking specialists STR Global. 

Additionally, the company’s like-for-like revenue from franchised hotels rose by 13.5%, following a strong showing in continental Europe.

All that is positive, but caution is always merited when it comes to investing in hotel stocks given the operating climate they find themselves in, often facing the repercussions of economic downturns and terror attacks. While the nature and impact of the latter on holidaymakers' mindset is unpredictable, over the short to medium term, the European economy – with some exceptions – appears to be in a stable, if not overtly upbeat place.

For its part easyHotel has said group trading “remains in line” with its expectations, and that its brand will to continue to outperform competitors, despite market data pointing to challenging conditions, with Brexit, Italy, Spain and all the rest of it in tow. 

And the company is certainly not holding back on expansion increasing its footprint to 2,430 rooms across 27 hotels in 18 cities, after a recent £50m equity fundraising exercise. 

Three of its new hotels were opened in the six months to March – in Liverpool and Newcastle, UK and Scheveningen Beach, The Hague, Netherlands – with the facilities adding 269 rooms to group network count.

Overall, company fundamentals appear solid, even if the wider sector operating climate remains challenging.

easyHotel reckons discerning consumers would watch their pennies in the current climate, and take-up its no frills offer in incremental volumes for the next 12 months, and that – especially if the REVPAR is maintained – can’t be bad for its share price prospects.