Morningstar | Demand Growth Solid in Accor's Core European Regions, Supporting Its Brand Advantage
We expect Accor to expand share in the hotel industry over the next decade as a result of its solid loyalty and digital program and exposure to the millennial traveler through its lifestyle brands, supporting its intangible brand asset advantage. As a result, we see near mid-single-digit unit growth on average over the five years, followed by slower low-single-digit growth in our out-year forecasts, as we believe high exposure to economy/midscale (75% of total rooms) predominantly in urban locations exposes Accor to competitive threats from Airbnb and other alternative accommodations. Although we see Accor's share expanding, we expect key peer Marriott to increase its share at a faster rate, given stronger exposure to the millennial traveler through select-service and lifestyle brands, a larger loyalty member base, and lower exposure to economy and midscale urban rooms.In February 2018, Accor announced a deal to sell the majority of its owned assets to investors. The sale leaves the remaining company with an asset-light business generating around 85% of total EBITDA versus 43% in 2016, although the acquisitions of Mantra and Movenpick (which together equate to around 10% of total company revenue) later in 2018 have increased Accor's ownership mix once again. Still, the majority of cash flow is derived from asset-light rooms that offer high returns on invested capital and contract lengths of 30 years that are costly to terminate, resulting in a switching cost advantage for the company.Cyclicality and overbuilding in the industry present the main risk for shareholders. Typically, lodging recoveries last seven to nine years. We model this cycle to last through 2018 (nine years), which we believe is reasonable, considering that from 2009 through 2017, U.S. demand and supply have increased by around the high 20s and 10%, respectively, with supply growth roughly matching demand growth in 2018.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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