Shares in Mantra Group, Australia’s second biggest hotel and apartment operator, have risen more than 50 per cent since floating in June last year, making it one of the surprise star performers on the ASX.
Shares floated at $1.70 on June 20 – the float only getting over the line after owners CVC Asia Pacific and investment bank UBS agreed not to sell down their equity, following an earlier failed attempt to float the business.
The share price peaked at $2.90 on New Year’s Eve before falling back to around $2.72, giving Mantra a market cap of about $680 million.
As forecast by hotel analyst DeanDransfield, institutional investors have followed AMP – which acquired 5 per cent of Mantra stock in August – into the stock after it delivered a strong set of full-year results.
“Mantra is being rerated. It’s moving into institutional territory,” Mr Dransfield said in August.
The consensus among analysts is that Mantra, which manages over 11,000 rooms but does not own hotel property, has been a beneficiary of the improving fundamentals in the tourism sector, delivering results in line with its prospectus to date, and growing its portfolio of hotels.
Arecord eight properties joined the Mantra Group network in FY2014, with five added in FY2015 and a further seven in the pipeline, including two in Bali.
However, it will need to make acquisitions above and beyond what it has forecast in its prospectus, if it is to deliver further earnings upgrades and sustain the share price momentum.
“Mantra has been a strong performer since the IPO, and has traded above our previous valuation in recent weeks,” said analyst Edward Day of Moelis &Co in a recent note.
“Whilst we see the attraction to the tourism exposure, we recognise that the bulk of Mantra’s earnings are CBD (largely corporate, albeit some tourism-related earnings) and we believe this limits near term upside.
“At this stage, it does not appear the acquisitions will surprise on the high side, either,”Mr Day said.
Mr Day has a sell rating on Mantrashares and suggested that investors “take the opportunity to lock in the recent share price performance”.
Morgans analyst Belinda Moore, who has a hold rating on Mantra with a target price of $2.70, said the hotel operator was off to a solid start in FY2015.
“Mantra is benefiting from improving domestic leisure and business travel demand through both its resorts and CBD businesses,” she said in a note.
“Strong international in-bound travel to Australia, led by Asia, is also a contributing factor. The fall in the Australian dollar is a positive tailwind for the business. In addition, new properties continue to be added to the portfolio which Mantra can comfortably fund from its strong balance sheet,” she said.
WhileMorgans’ 2015 forecasts for Mantra remain unchanged, Ms Moore said it would not be surprising if guidance was upgraded at the interim result in February.
Others were even more bullish.
UBSanalyst Hang Xu had a buy rating on Mantra in December note, forecasting a 5 per cent lift in 2015 earnings amid “current solid accommodation demand and rate (RevPar) growth particularly from the Queensland leisure markets”.
A test of the appetite for Mantra shares could come soon after interim results due on February 27.
Soon after, CVCand UBSwill be able to sell up to 25 per cent of their Mantra shares meaning up to 27 million shares could hit the market.
Collectively they hold 43.3 per cent of the issued stock.