Morningstar | Accor Making Rational Investments to Support Its Brand Advantage; Shares Slightly Undervalued
We may lift our EUR 41 fair value estimate for Accor by a low-single-digit percentage, given our increased confidence the company can achieve its 2022 EBITDA target of EUR 1.2 billion (versus our existing EUR 1.1 billion estimate), after it outlined areas it would invest proceeds garnered from the EUR 4.8 billion sale of owned assets in 2018.Accor plans to invest EUR 225 million to build its loyalty, partnerships, and brand marketing, which we see as prudent, and which we believe can generate its target for an incremental EUR 75 million in EBITDA, while also supporting its brand advantage (source of its narrow moat). Although Accor's loyalty program grew over 20% to 50 million members in 2018, it still is behind narrow-moat peers Marriott (over 120 million members), InterContinental (over 100 million), Hilton (85 million), and Wyndham (around 70 million). Further, Accor's members represent just 30% of its total bookings, well below the 50%-plus at Marriott and Hilton. As a result, it launched Accor Live Limitless, which will offer experiences through digital platforms and partnerships. For instance, Accor has teamed with AEG to offer its members 60,00 tickets and private events, suites, experiences. Accor believes this initiative can drive its loyalty contribution 10 percentage points higher (to around 40% of total bookings), while also generating EUR 100 million in partnership revenue. We think this is achievable, given peers like Marriott garner over 50% of room nights from loyalty members and several hundred million in sales from partnerships. We expect that the initiatives can drive our 2019-23 3.5% average annual unit up around a percentage points, while supporting our already robust 3.2% annual revenue per available room growth forecast over that time.
Accor's 2018 was solid with total revPAR and unit growth of 5.6% and 14%, respectively, above our 3.5% and 12.5% forecast. Specifically, Europe (47% and 20% of total existing and pipeline rooms, respectively) posted fourth-quarter revPAR growth of 7.9%, compared to the 7.2% posted by Hilton. Meanwhile, ASPAC (30% and 49%, respectively) posted revPAR growth of 4%, compared to the 5% China growth posted by Hilton.
Accor is a hotel operator. Co. offers its guests and partners the expertise of a hotel operator and brand franchisor (HotelServices) and a hotel owner and investor (HotelInvest). Co. divides its activities into three segments: Luxury-upscale, Midscale and Economy. Luxury-upscale makes up 11% of Co.'s portfolio and comprises brands such as Sofitel, Pullman, MGallery, and Grand Mercure; Midscale makes up 43% of its portfolio and comprises the Novotel, Suite Novotel, Mercure and Adagio brands; and Economy makes up 46% the Co.'s portfolio, comprising the brands ibis, ibis Styles, ibis budget and hotelF1. At Dec 31 2013 Co. operated around 3,600 hotels and 460,000 rooms in 92 countries.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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