Arena Hospitality — Eastward Ho!

Arena Hospitality — Eastward Ho!

Arena Hospitality has bucked travel industry despondency with the expectation of a ‘strong’ summer in Croatia, its longstanding profit driver, and confirmation of sustained targeted investment despite market challenges. Indeed, this ‘surge in leisure demand’ is substantiated for June by industry reports of a c 80% year-on-year rise in foreign tourist nights in Istria, where Arena is based. While half the level of 2019, this is no mean feat, given extensive site closures until June, and shows potentially rapid recovery on travel easing. Also in H121, key investments made good progress, notably repositioning the iconic Hotel Brioni in Croatia, opening in Belgrade on the push eastwards and a new mobile check-in app. Robust finances (c 56% bank gearing at June 2021) should allow Arena to capitalise on growth opportunities enhanced by pandemic fallout.

Richard Finch

Written by

Richard Finch

Analyst, Consumer

Arena Hospitality

Eastward Ho!

Travel & leisure

QuickView

23 August 2021

Price

HRK312

Market cap

HRK1,590m

Share price graph

Share details

Code

ARNT

Listing

Zagreb Stock Exchange

Shares in issue

5.1m

Business description

Arena Hospitality is a leading provider of tourist accommodation in Croatia with a growing presence in major cities in Germany and central and eastern Europe. Arena is 52% owned by PPHE Hotel Group (giving it access to its Park Plaza brand) and is listed on the Official Market of the Zagreb Stock Exchange.

Bull

Diversified estate in prime locations with prominence in a long-term growth market (tourism in Istria, Croatia; two-thirds of Arena pre-pandemic profit) complemented by developing business custom.

Powerful branding (Park Plaza) and distribution (inclusion in Radisson Hotel Group’s systems) via majority shareholder, PPHE.

High-quality pipeline secured by robust finances (at June 2021 HRK800m net bank debt, largely with five plus years’ maturity and HRK272m cash).

Bear

Uncertainty about international travel restrictions and the economic impact of the pandemic.

Execution risk in terms of expansion.

Seasonality and sensitivity to adverse weather in Croatia, Arena’s main profit centre, mitigated by growing exposure to year-round markets.

Analysts

Richard Finch

+44 (0)20 3077 5700

Russell Pointon

+44 (0)20 3077 5700

Arena Hospitality has bucked travel industry despondency with the expectation of a ‘strong’ summer in Croatia, its longstanding profit driver, and confirmation of sustained targeted investment despite market challenges. Indeed, this ‘surge in leisure demand’ is substantiated for June by industry reports of a c 80% year-on-year rise in foreign tourist nights in Istria, where Arena is based. While half the level of 2019, this is no mean feat, given extensive site closures until June, and shows potentially rapid recovery on travel easing. Also in H121, key investments made good progress, notably repositioning the iconic Hotel Brioni in Croatia, opening in Belgrade on the push eastwards and a new mobile check-in app. Robust finances (c 56% bank gearing at June 2021) should allow Arena to capitalise on growth opportunities enhanced by pandemic fallout.

‘Sehnsucht nach dem Süden’: A welcome lure

In the thick of COVID-19 travel restrictions the long-established particular appeal of the south (so-called ‘Sehnsucht nach dem Süden) to those in central Europe continues to be a boon to Arena. While summer 2020 saw access by car to Croatia from key feeder countries boost the popularity of its high-margin campsites (albeit Q320 Croatia EBITDA was down 70% year-on-year), in June 2021 the marked recovery was led, as expected, by tourists from Germany (comfortably the largest market), Slovenia, Austria and eastern Europe, according to the Croatian Bureau of Statistics. Encouragingly, Arena reports continued good bookings since June, backing its confidence in a ‘strong summer’ (64% of 2019 EBITDA ex Q3 Croatia).

Maintained investment focus despite torrid times

This late pick-up apart, Q221 saw only a marginal year-on-year cut in EBITDA loss with COVID-19 restrictions collapsing demand in Germany (hotel occupancy just 8%) and prompting extended closures in Croatia and Budapest. Yet this has not stemmed Arena’s strategic aim to expand in central and eastern Europe (opened in Belgrade in May, with Zagreb in 2022) and complete major asset repositioning projects in Istria, headed by its HRK260m flagship development of Hotel Brioni.

Valuation: Fair but ready to punch above its weight

Given COVID-19 disruption, we base the valuation on 2019 and pre-IFRS 16 numbers. HRK206m EBITDA on HRK800m net debt (June 2021) gives an EV/EBITDA of 11.6x (European peer average 9.4x on a similar basis), reflecting Arena’s international ambitions, boosted by its association with PPHE (ie access to strong branding (Park Plaza) and global distribution (Radisson Hotel Group)).

Consensus estimates

Year
end

Revenue
(HRKm)

EBITDA
(HRKm)

PBT*
(HRKm)

EPS*
(HRK)

DPS
(HRK)

EV/EBITDA
(x)

12/19

778.1

229.5

108.8

29.1

0.0

8.1

12/20

238.3

(18.3)

(232.3)

(44.7)

0.0

N/A

12/21e

427.3

53.7

(99.5)

(5.3)

0.0

47.6

12/22e

747.0

214.3

42.5

13.0

0.0

13.0

Source: Refinitiv. Note: *FRS3.

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Schumannstrasse 34b

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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