Acquisition Of Radisson Blu Hotel Tromso Will Expand Future Portfolio

Key Takeaways

• Strategic acquisitions and investments enhance earnings quality and are expected to boost future revenue and operating income.
  
• Active leases with inflation protection and favorable financing conditions support stable revenue growth and improved financial performance.
  
• High capacity and competitive acquisition pressures may impact Pandox's occupancy, RevPAR, and margins, risking revenue and earnings if conditions worsen.

Catalysts

A hotel property company, owns, develops, and leases hotel properties worldwide.

• Pandox's strategic agenda includes acquisitions and investments to improve earnings quality and drive profitable growth, expected to positively impact future revenue and net operating income.
  
• The company has a solid growth platform with active revenue-based leases providing inflation protection, which should support stable revenue growth and enhanced net margins.
  
• The acquisition of profitable hotel properties in strong locations, including the Radisson Blu Hotel Tromso, is anticipated to add significant net operating income annually, boosting future earnings.
  
• Pandox is on track to increase net operating income by investing in their existing portfolio, expecting additional income by 2026, impacting future revenue and earnings.
  
• The company is benefiting from lower credit margins and sustainability-linked loans, improving financing conditions and contributing to stronger financial performance and earnings growth.

Pandox Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Pandox's revenue will grow by 5.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 23.7% today to 32.6% in 3 years time.
• Analysts expect earnings to reach SEK 2.7 billion (and earnings per share of SEK 14.0) by about March 2028, up from SEK 1.7 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting SEK3.5 billion in earnings, and the most bearish expecting SEK1.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.6x on those 2028 earnings, up from 20.6x today. This future PE is greater than the current PE for the GB Real Estate industry at 20.5x.
• Analysts expect the number of shares outstanding to grow by 5.85% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.3%, as per the Simply Wall St company report.

Pandox Future Earnings Per Share Growth

Risks

• The relative struggle in certain geographic locations, such as Gothenburg, due to high capacity inflow could lead to pressure on occupancy rates and RevPAR, impacting revenue growth expectations.
  
• A noted decrease in RevPAR by approximately 1% like-for-like, with marginal decreases in both occupancy and average price, suggests potential revenue and earnings risks if market conditions do not improve.
  
• The anticipation of seasonally weaker demand in the hotel market in the first quarter of 2025, despite positive effects from acquisitions and Easter, could lead to reduced revenue and earnings growth.
  
• Competition for acquisitions is noted to be increasing, which might pressure acquisition returns and affect future profit margins if Pandox has to pay higher prices for new properties.
  
• Any significant rise in interest rates could potentially compress the current positive yield spread of 200 basis points, impacting the firm's net margins and overall financial health.

Valuation

• The analysts have a consensus price target of SEK223.333 for Pandox based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK8.3 billion, earnings will come to SEK2.7 billion, and it would be trading on a PE ratio of 24.6x, assuming you use a discount rate of 9.3%.
• Given the current share price of SEK178.6, the analyst price target of SEK223.33 is 20.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.