Saturday, February 24

The market underestimates the potential of Meliá

Meliá Hotels shares posted a 13 percent rise in January, but the bullish machinery still has steam to continue accelerating the rebound.

“We believe that the consensus underestimates the recovery of Meliá”, argued the analysts of UBS in a recent report. In his opinion, the hotel chain discounts a target price of 8.9 euros, which represents a margin of increase of 22 percent compared to current prices.

Amadeus and Meliá offered the first clues of what the recovery of the tourism sector could be this year after the shock caused by the omicron variant of coronavirus. And the prospects are encouraging.

Although omicron affected travel and mobility on a global scale, Meliá it has reopened most hotels and its most recent data shows bookings “increased markedly”, experts at the Swiss bank said.

Increase in Meliá reservations in tourist areas

It is true that the fourth quarter results that the chain will present on February 28 will still show the impact of the virus.

However, reservations for the summer are currently above 2019 levels in tourist areas and “strong price trends” are seen, the same sources argued.

“We believe there is pent-up demand in tourism and signs of incipient recovery for corporate travel,” they added. UBS.

Another important issue highlighted by the experts is that the hotel chain has already reached the ‘break even’ or balance point in cash terms since July, that is, it was able to curb the outflow of cash.

Weakness turned into opportunity

In the accumulated balance until September, Meliá it had cash liquidity of 439 million euros, an amount higher than it was before the pandemic. According to analysts at Bankinter, no significant cash consumption is expected in the coming quarters.

For analysts of UBS, the weakness that Meliá’s actions have shown represents “an opportunity” as long as the setbacks generated by the coronavirus are temporary.

“The cases in recent weeks are beginning to stabilize, and globally consumers seem less concerned,” they argued in the Swiss entity.

In any case, the consensus of analysts is not so optimistic with Meliá and calculates a minimum potential rise of 0.6 percent.

Meliá’s three competitive advantages

To justify their commitment to the hotel chain, the same sources identified three competitive advantages that can boost the group of the escarrer family.

First, it is a world leader in the tourism sector that is well positioned to take advantage of the recovery in demand for leisure.

One of its key markets is Spain, a destination perceived by customers as “relatively safe” compared to other tourist areas of the Mediterranean where the flight time is longer or where there is more fear of the virus.

On the other hand, the success of Meliá’s own booking engine means that the chain has greater power to set prices.

In fact, it is already the preferred channel for its clients to make reservations, which is allowing the group to avoid commissions from tour operators.

Finally, at UBS they expect long-term growth for mid-sized corporate events.

Teleworking has come to stay with the pandemic, but precisely for this reason, it will be increasingly necessary to hold this type of event, so that companies do not lose personal contact with their clients.

Risks to be aware of

However, in the Swiss bank they also recognized that investors in Meliá face “remarkable risks”. Among them they identified the cyclical nature of the hotel industry and the strong competition.

In addition, it is a sector with high fixed costs, in which companies do not react easily to falls in demand.

Likewise, “Meliá has carried out an international expansion in emerging markets and has exposure to Cuba,” they explained at UBS.

Without forgetting that the Spanish economy presents notable imbalances that could generate volatility in the macroeconomic panorama.