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Berenberg lowers target price on Millennium and Copthorne
With the financial performance of Millennium and Copthorne Hotels remaining mixed, with some regions delivering substantial growth while others struggle due to a combination of market conditions and a lack of investment, analysts at Berenberg saw fit to trim their target price on the firm.
With M&C set to address the latter issue, something the broker believes could drive growth in the medium-term, but could also lead to minimal free cash flow in the near-term, Berenberg reiterated its 'hold' rating on the hotelier while lowering its target price from 553p to 550p.
Furthermore, the analysts expect M&C's strategy of owning hotels to be maintained, something the broker expects to result in only limited potential for the gap between its market value and asset value to narrow.
M&C's trading in its traditional key cities continued to be varied throughout the first quarter, revenue per available room fell 9.4% in London due to "challenging market conditions" and the impact of refurbishing one of its properties, while in Singapore, a long-running decline stopped, but its RevPAR only increased a "modest" 1.1%.
However, in contrast, RevPAR grew by 7.1% in New York, supported by a strong market and Hilton taking over management of the One UN hotel.
RevPAR growth in Australasia meanhile continued at a double-digit pace, Berenberg said.
"We expect the performance in these cities to remain volatile and be highly dependent on market conditions until the company has invested in its assets and gains greater brand loyalty," Berenberg said.
With M&C set to spend roughly £56m to upgrade its New York properties over the next two years, at the same time it was expected to finally begin construction of new hotel developments in California and Seoul during 2018, Berenberg estimated that capex would rise to £180m in 2018 and £240m in 2019.
On a slightly more positive note, the company's margins might improve by 30bp to 16.4% this year, their first increase since 2014, although rising costs and falling RevPAR in London might impede that.