1 Levent Yilmaz, 3 January, 2017 Hilton Fully valued 12 Month Share Price target: $26.74; Current Share Price: $27.2 Hilton is a leading global hospitality company, spanning the lodging sector from luxury and full-service hotels and resorts to extended-stay suites and focused service hotels. The company’s portfolio includes thirteen world-class global brands, 789,000 rooms 1 , 4,820 Hotels 2 in 104 Countries and Territories. Hilton is a high quality lodging company with leading brands and healthy growth rates. Hilton has a resilient fee driven model and it is diversified across geographies and chain scales. 1 Figures include timeshare properties. 2 Figures include timeshare properties.
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
1
Levent Yilmaz, 3 January, 2017
Hilton Fully valued
12 Month Share Price target: $26.74; Current Share Price: $27.2
Hilton is a leading global hospitality company, spanning the lodging sector from luxury and full-service
hotels and resorts to extended-stay suites and focused service hotels. The company’s portfolio includes
thirteen world-class global brands, 789,000 rooms1, 4,820 Hotels2 in 104 Countries and Territories.
Hilton is a high quality lodging company with leading brands and healthy growth rates.
Hilton has a resilient fee driven model and it is diversified across geographies and chain scales.
1 Figures include timeshare properties. 2 Figures include timeshare properties.
2
Levent Yilmaz, 3 January, 2017
Its balance sheet and cash flow profile is improving.
But a slowing international RevPAR3 growth environment could hurt Hilton’s earnings growth.
3 RevPAR (Revenue Per Available Room) is the total guest room revenue divided by the total number of available rooms.
RevPAR differs from ADR because RevPAR is affected by the amount of unoccupied available rooms, while ADR shows only the average rate of rooms actually sold. Occupancy x ADR = RevPAR –– A RevPAR (Yield) Index measures a hotel’s fair market share of their segment’s (competitive set, market, submarket, etc.) revenue per available room. If a hotel is capturing its fair market share, the index will be 100; if capturing less than its fair market share, a hotel’s index will be less than 100; and if capturing more than its fair market share, a hotel’s index will be greater than 100. RevPAR Index is calculated: (Hotel RevPAR / Segment RevPAR) x 100 = RevPAR Index; Fair share can be thought of as the subject hotel’s “piece of the pie” in the market. For example, if the subject hotel’s RevPAR is $50 and the RevPAR of its competitive set is $50, the subject hotel’s index would total 100. If the subject hotel’s RevPAR totaled $60, its index would be 120, which indicates that the subject hotel has captured more than its fair share. Occupancy (Occ) is the percentage of available rooms that were sold during a specified period of time. Occupancy = Rooms Sold / Rooms Available; (Average Daily Rate) ADR = Room Revenue / Rooms Sold
3
Levent Yilmaz, 3 January, 2017
Economic slowdown and security threats are impacting its business in Europe. Increased supply growth
in the upscale and upper midscale chain scales could impact fee growth.
The US business is picking up in anticipation of tax cuts, reduction of regulatory burden and
infrastructure spending. Multiples in the sector have therefore expanded. But one needs to wait for
actual implementation of policies.
If we assume multiples for Park Hotels, Hilton Grand Vacations and Hilton "RemainCo" at the top of their
respective peer groups, Hilton could reach a value per share of $26.74.
Hilton Sum-of-the-Parts Valuation ($ in millions, except per share data)
2018E Multiple (x) Value
Ownership EBITDA $1,033 10.5 $10,847
Management and Franchise Fees EBITDA $2,073 11 $22,803
Timeshare EBITDA $415 7.5 $3,113
Corporate and Other -$261 10.4 -$2,714
Total EBITDA $3,260 10.4 $34,048
Less: 2018E Net Debt -$7,549
Equity Value $26,499
Shares outstanding (mm) 991
Equity Value Per Share 26.74
While Hilton’s share price has outperformed S&P 500 in the 2H 2016, the S&P 500 is not cheap
currently and a likely price correction is likely to hurt Hilton’s share price as well.
-20.0%
-10.0%
0.0%
10.0%
0
20
40
60
80
100
Average revenue per available room (RevPAR) of the US hotel industry in USD
Average revenue per available room (RevPAR) of the US hotel industry in USD
Change revenue per available room in the US lodging industry, PWC