‘Revenge travel’ helped lure investors to check into Dalata. How long will they stay?

Analysts’ earnings upgrades continue to come thick and fast for Dalata Hotel Group – something that will be of little surprise to anyone who has tried recently to book a room in Dublin, home to most of its properties and some of the most expensive hotel rates in Europe.

Shares in the company, which operates under the Clayton and Maldron brands, rose more than 10 per cent this week after the company signalled that its earnings before interest, tax, depreciation and amortisation (Ebitda) will rise more than 20 per cent for the first half of the year to in excess of €100 million.

Dalata’s stock has risen over 45 per cent so far this year, pushing its market value above the €1 billion mark and making it the best performing stock on the Iseq 20. Its advance has been at more than twice the pace of the wider Irish market.

Revenue per available room (RevPAR) for the first six months of the year across its 50 hotels in the Republic, UK and fledgling continental European business (with one hotel in Düsseldorf, Germany, acquired early last year) is expected to be 29 per cent ahead of the same period in 2019, before the Covid-19 pandemic.

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Dublin, where 19 of Dalata’s hotels are based, ranked as the third most expensive place for hotel rooms among 35 European cities surveyed recently by the UK’s Post Office Travel Money unit, after Amsterdam and Venice. The survey, published in late May and based on three-star hotels, found that prices had risen by more than 50 per cent in 27 of the cities as accommodation providers capitalised on post-Covid “revenge travel”.

Room supply issues in Ireland have been exacerbated in the past year by the Government’s use of hotels to put up refugees, mainly from Ukraine, coming into the State. The Irish Tourism Industry Confederation estimated in March that almost a third of hotel and guest house beds outside of the capital were being used to accommodate refugees and asylum seekers.

The figure for Dublin is estimated to be a little over 10 per cent. Dalata has been providing about 5 per cent of its rooms to the Government since last year.

Will former high-frequency business travellers ever return to their pre-pandemic ways? The hotel sector, like many others, is still trying to figure out what the new normal will really look like.

The company, where Dermot Crowley took over as chief executive in 2021 from its high-profile founder, former Jurys Doyle boss Pat McCann, said on Wednesday that it “looks forward with confidence to the summer trading period as demand is robust across all markets”.

The outlook prompted Davy analyst Paul Ruddy, for one, to upgrade his forecasts for Dalata for the third time so far this year. He highlighted that despite Dalata spending €112 million on acquisitions so far in 2022 – including the purchase of a newly-finished London hotel close to Finsbury Park Station, which will open its doors within weeks, and the long-term leasehold on the Apex London Wall Hotel – the company’s financial position remains strong. Ruddy estimates the group’s net debt will be less than 1.2 times Ebitda, after rent, by the end of this year.

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The solid state of the company’s balance sheet in many ways goes back to moves at the height of the pandemic in 2020, when Dalata raised a total of nearly €160 million from a sale and leaseback deal on its Clayton Hotel Charlemont on the banks of Dublin’s Grand Canal and the sale of shares on the stock market.

This helped the company return to growth in 2022, in a year that saw it add a record 1,509 new rooms across six new hotels in the Republic and the UK, and to venture on to the continent with the purchase of the almost 400-room Hotel Nikko Düsseldorf. The additions pushed the group’s bedroom count above the 10,000 threshold. It has a further pipeline of about 1,400 rooms in the works.

The group’s UK room count is on track to have almost doubled in the space of four years to about 5,000 by the end of 2024, and Crowley set out a target in February to double that figure again in time – though he is a canny enough operator not to tie himself down to a timeline, for the moment at least.

What happens when the post-pandemic pent-up travel story, which really took off last summer, finally plays out?

While the chief executive said in February that the company is also exploring several other opportunities on the continent, including Berlin, Madrid, Barcelona, Brussels, Amsterdam, Vienna, and “a few” Italian cities, the focus remains on the UK.

Berenberg analyst Jack Cummings reckons that despite Dalata’s strong run so far this year the fact that the stock continues to trade at about a 20 per cent discount to its net asset value “is unjustified”.

But there are reasons for caution. What happens when the post-pandemic pent-up travel story, which really took off last summer, finally plays out?

The phenomenon has served to mask a fall-off in corporate travel, particularly among foreign directive investment (FDI) companies for a variety of reasons, including budgets being pulled back in the tech sector is it goes through a period of lay-offs, and companies relying more on virtual meetings as they are more conscious of carbon emissions.

Will former high-frequency business travellers ever return to their pre-pandemic ways? The hotel sector, like many others, is still trying to figure out what the new normal will really look like.