{"id":804178,"date":"2024-12-19T12:00:00","date_gmt":"2024-12-19T10:00:00","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=804178"},"modified":"2025-01-16T15:17:55","modified_gmt":"2025-01-16T13:17:55","slug":"why-its-a-good-time-to-check-your-investments-into-a-hotel","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/finance\/804178\/why-its-a-good-time-to-check-your-investments-into-a-hotel\/","title":{"rendered":"Why it’s a good time to check your investments into a hotel"},"content":{"rendered":"\n

The resurgence in the tourism industry may pose a strong investment opportunity.<\/p>\n\n\n\n

The resurgence in the tourism industry post-COVID has also been reflected in international arrivals, which grew by 50% last year.\u00a0<\/p>\n\n\n\n

Allan\u00a0Gray\u2019s\u00a0Varshan Maharaj said that this bodes well for the hospitality sector, which is currently undervalued and offers long-term growth for investors.<\/p>\n\n\n\n

The World Travel and Tourism Council (WTTC) said that South Africa’s tourism sector is expected to grow by almost 8% a year over the next decade, significantly outstripping GDP growth. <\/p>\n\n\n\n

\u201cThe key determinants of investment success are the price you pay and the value you get from earnings growth,\u201d said Maharaj.<\/p>\n\n\n\n

\u201cThe hospitality sector currently offers attractive opportunities at both ends of the spectrum.\u201d<\/p>\n\n\n\n

He said that there are good investment cases for local hotel chains like Southern Sun and City Lodge. <\/p>\n\n\n\n

\u201cBoth these businesses own and manage hotels.\u201c<\/p>\n\n\n\n

“Their profit is driven by the number of hotel rooms, occupancy of these rooms and average room rates (ARRs).\u201d<\/p>\n\n\n\n

Although these companies took severe strain when they were forced to close during Covid-19, leading to a collapse in their share prices, their earnings have recovered, but still remain below normal. <\/p>\n\n\n\n

\u201cSouthern Sun\u2019s ARR for this year is R1,388, which translates to $74,\u201d said Maharaj. <\/p>\n\n\n\n

\u201cHotels in comparable nations enjoy much higher ARRs of $120 to $150.\u201d <\/p>\n\n\n\n

As South Africa\u2019s lower ARRs are due to relative oversupply, he believes profits are likely to grow as occupancies and ARRs continue to recover.\u00a0<\/p>\n\n\n\n

That said, there is still risk.<\/p>\n\n\n\n

\u201cIncreasing occupancy rates and ARRs rely on economic growth, which may take a few years to materialise.” <\/p>\n\n\n\n

\u201cHotels are cyclical, but we assess that there are still some good years ahead.\u201d<\/p>\n\n\n\n

Other areas to invest<\/strong><\/p>\n\n\n\n

Looking internationally, Maharaj believes that there are other appealing investment opportunities, especially Marriott and Hilton.<\/p>\n\n\n\n

\u201cMost of their hotels are owned by third parties, with Marriott and Hilton selling their brands, systems, and hotel management expertise to hotel owners in exchange for a fee linked to the revenue and profits of the hotels.\u201d<\/p>\n\n\n\n

He noted that both companies excel at connecting loyal guests with hotel owners.<\/p>\n\n\n\n

\u201cThey have earned guests\u2019 trust by giving them what they want (competitive prices and consistent experience), as well as satisfying hotel owners with higher returns.” <\/p>\n\n\n\n

Despite their price-to-earnings ratios being relatively high, both still offer investors attractive returns given the success of their asset-light business model.<\/p>\n\n\n\n

\u201cMarriott achieves consistent earnings growth, with a focus on returning capital to shareholders through dividends and share buybacks, while Hilton is known for its high free cash flow conversion, which supports shareholder returns and reinvestment in growth.\u201d<\/p>\n\n\n\n

He added that Booking.com is another attractive investment opportunity.<\/p>\n\n\n\n

\u201cIt\u2019s the world\u2019s largest online travel agent by revenue, offers 29 million accommodation room listings and is dominant in Europe.” <\/p>\n\n\n\n

“Although not at the upper end of the market like Marriott and Hilton, Booking.com offers a wide choice of independent hotels, good user experience and low prices.\u201d<\/p>\n\n\n\n

He also believes that the company has captured a larger share of its customers\u2019 travel spend by cross-selling flights, tours, meals and other experiences.<\/p>\n\n\n\n

\u201cIt has also created its own Genius loyalty programme, which drives 75% of its bookings.” <\/p>\n\n\n\n

\u201cCurrently South African hotel owners are trading at less than half of their replacement cost and the American brand owners and online travel agents are trading at reasonable multiples, while rapidly growing earnings.”<\/p>\n\n\n\n

\u201cGiven the size of the global market, well-known players in the hospitality industry are likely to continue to grow in the years to come.\u201d<\/p>\n\n\n

\n
\"\"<\/a>
Allan Gray’s Varshan Maharaj<\/figcaption><\/figure><\/div>\n\n\n
\n\n\n\n

Headline Image: Arabella Hotel, Golf and Spa (Southern Sun).<\/em><\/p>\n\n\n\n

\n\n\n\n

Read<\/strong>: This is the average salary in South Africa right now<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The hospitality sector is recovering from the Covid-19 pandemic, which could pose a potential investment opportunity.<\/p>\n","protected":false},"author":95,"featured_media":804189,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11121],"tags":[6756,26],"class_list":["post-804178","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance","tag-allan-gray","tag-headline"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/804178","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/95"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=804178"}],"version-history":[{"count":6,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/804178\/revisions"}],"predecessor-version":[{"id":807199,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/804178\/revisions\/807199"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/804189"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=804178"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=804178"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=804178"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}