Erste Bank has raised its target price on Hungarian hotel chain owner Danubius to HUF 7,233 and maintained its ‘Buy' recommendation on the stock. While there is a public bid for the company at HUF 5,825 by the three main shareholders, Erste said this was but a technical bid required by law in order to allow acquiring shares by the company.
“This action further underlines Danubius' plans to remain in the hotelier business and continue with its strategy. The company's optimistic plans for the future should keep it on a growth path, with expansion in Great Britain a consideration," Erste's Levente Blahó said in an analysis dated 30 August.
“The recent equity correction left the stock undervalued; having plunged 20%, the shares now have substantial upside potential," the analyst said, adding that the growth path delineated by the company looked to be successful.
The regional expansion and constant development of the hotels have increased their value, the analyst said.
There has been speculation for years that, in accordance with other similarly structured companies, Danubius would be split into a hotel operator and a real estate management company. (Such a move is currently being undertaken by Hungarian IT company Graphisoft, which is splitting off its real estate business as a new independent entity, which will have its shares listed on the stock exchange.)
“If Danubius split its businesses, the asset valuation suggests a significantly higher fair value than its share price indicates at the moment" - indeed, even higher than Erste's target price.
“However, such a step would only be reasonable if the management or majority shareholders were primarily interested in pushing up the share price. In our view, Sir Bernard Schreier is not interested in such an action, and would rather use Danubius' cash flow toward takeovers (e.g. Marianbad, Danubius Regents Park)," Blahó added.
To accurately assess the company, Blahó probed all three major valuation methods: DCF, asset valuation and peer group analysis. He came to the conclusion that the most accurate of the three is the DCF model, so he added a weight of 50% to it. The peergroup comparison target price received a weight of 35%, while the asset valuation got 15%. Thus, he came to the conclusion that the equity of the company is worth some HUF 6,490 (EUR 23.86) per share.
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