Morningstar | Accor Sees a 3Q European Demand Pick-Up While New Business Ventures Continue to Face Pressure
We don't plan a material change to our EUR 41 fair value estimate, after narrow-moat Accor reported a mixed third-quarter sales update with solid 6% revPAR growth, offset by anemic 1.5% organic net room growth and a 6% drop in New Business (4% of sales) segment revenue.We are encouraged by Accor's 6% revPAR growth, which was a pick up from last quarter's 5% lift, despite an 1.8% tougher year-ago comparison. The company’s core European market (48% of total rooms) drove results with a 7% revPAR pick-up versus 6% last quarter, even though it faced a 3.3% tougher comparison. Meanwhile, Accor's other major market, Asia-Pacific (30% of total rooms), was a touch weaker with revPAR up 3%, a deceleration from last quarter's 5% lift (0.7% harder comparison). One area of concern is Australia, where industry oversupply in some regions weighed on the 0.6% revPAR gain the company posted in the quarter. That said, we view China's 6% revPAR gain as solid.
After excluding recent acquisitions, we calculate anemic organic net room and pipeline growth of around 1.5% and 3%, respectively. This supports our view that Accor's unit growth will average low single digits the next several years, below the mid-single-digit unit lift we forecast for narrow-moat Marriott, Hilton, and Hyatt, as we see the company more exposed to alternative accommodation competition given its urban economy and midscale presence (around 75% of the total room base).
While we appreciate Accor's investments into alternative services (i.e. vacation rentals, concierge), we maintain our view that the company faces an uphill battle to compete with the aggregator prowess of narrow-moat networks Booking Holdings, Expedia, and TripAdvisor. This stance was supported by Accor's 6% drop in New Business revenue. We are more constructive on Accor's recent Mantra and Movenpick acquisitions that serve to increase its luxury presence (39% of revenue versus 35% last quarter), reducing competitive risk from Airbnb and others.
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.
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