Accor : Play the Booster effect !
The Booster project is well under way and is slated for completion by summer. The transaction is expected to produce a major change at AccorHotels, creating value for shareholders. But it also expected to enhance the group's credit profile. Historically, management has always committed to maintaining an investment-grade rating, and with the spin-off of the property operations into subsidiaries, we believe the group stands a good chance of being upgraded to 'BBB'. It is with this in mind that we are moving to a Positive credit opinion and a Buy recommendation on the 2021, 2023 and 2024 ACFP notes as well as the hybrid notes. - - >Support factors - - AccorHotels is the leading hotel group in Europe and the firth largest in the world, with more than 4,100 hotels in operation. - The Booster project, which consists in turning most of its HotelInvest division (property operations) into a subsidiary, marks another important milestone towards a more flexible, less capital intensive and more lucrative asset-light operating profile. AccorHotels will also become more diversified, reducing the share of profits generated in France and Europe, while increasing its exposure to Asia-Pacific.- Its balance sheet is also expected to improve significantly, because once the sale of HotelInvest is completed, the group is expected to show a clear net cash position in view of 1/ € 4bn to € 6bn of cash proceeds depending on the amount of capital that is divested (vs. net debt of € 1.5bn currently); and 2/ the reduction in lease commitments (from € 2.3bn to € 0.4bn).Points to watch - - Operationally, the group is mainly exposed to the economic environment in Europe, and particularly to France. In 2016 the decrease in international tourist arrivals in France impacted on the group's activity in this market which accounted for 28% of its sales and 20% of its EBIT.- At this stage, management has not provided any guidance on the share of the gain from HotelInvest that will go to shareholders. A substantial amount would limit the potential for an upgrade of the S&P rating, bearing in mind that the proceeds are also expected to finance acquisitions.- By offloading HotelInvest, the group's size will shrink substantially, as sales are set to slump by more than 60% and EBIT by more than 40%. The balance sheet is expected to be adjusted accordingly.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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