Accor: Capital Markets Day Strategy Prudent, and Midterm Financial Targets Achievable; Shares Cheap

During the past decade, narrow-moat Accor AC has become more asset-light (97% of rooms managed and franchised today versus 59% in 2013), broadened its portfolio mix to luxury and lifestyle units (34% of fees now compared with 11% in 2013), and expanded its scale via organic and inorganic measures (over 800,000 total rooms currently from 462,000 in 2013). At its June 27 capital markets day, the hotelier laid out its midterm strategy to focus on design and consistency across its portfolio, with a heightened focus on premium brands and key geographical regions; we see this as prudent at this stage of the company’s evolution. We plan to maintain our EUR 41.50 fair value estimate and see the shares as attractive, trading at 12 times forward enterprise value/EBITDA, an unwarranted discount to the 13-14 of some peers.

Accor broke its strategy into the two new divisions announced this past January: premium, midscale, and economy, and luxury and lifestyle. The key takeaway for the PME division (91% of hotels and 66% of fees), which includes the Ibis, Novotel, and Pullman brands, is an aim to expand its premium mix, where it holds just a 5% share (excluding North America and China), despite representing 36% of the addressable market. This initiative does not surprise us, since premium fees can be over 30% higher than those in midscale and economy brands, and it harmonizes with Accor’s moves to build out its luxury exposure the past several years. Pruning and renovation plans across premium brands should help the firm achieve its goal. We view such efforts as necessary for operators to stay relevant in travelers’ minds and keep pace with peers. Accor noted that recently renovated units are seeing around a 15-percentage-point increase in revenue per available room. Meanwhile, Accor’s L&L segment, which focuses on high-end and lifestyle brands, will also work toward renovation and consistency, helping it serve the growing middle-income and high-net-worth classes.