It has been a busy year for IPOs. In the first five months of 2014, some 67 companies raised £13.6bn through public listings, compared to £10bn one year ago. In part, this reflects companies’ renewed confidence in Britain’s economic recovery. For example easyHotel, which will float on June 30, has ambitious plans to raise capital on the stock market in order to expand its hotel portfolio as consumer demand picks up (see below). The company will float 37.5 million new Ordinary Shares (80p per share) onto the AIM Market on Monday. The total number of shares in issue will be 62.5 million, giving the company a total market capitalisation of £50 million.
This article explores the context of easyHotel’s float and analyses the fundamentals in order to determine whether or not the new investors in easyHotel might get a good, or bad, deal. In particular, we examine the cyclical nature of easyHotel’s business and ask whether 80p per share is too much to pay. Stockopedia won’t receive standardised financials and prices until easyHotel floats, so we’ve done our best to collate some stats from the prospectus. As always, please DYOR and feel free to challenge, criticise anddebate everything in this article (which is not investment advice). EasyHotel is placing the shares with institutions, so individual investors won’t get a chance to invest until the shares openly trade.
EasyHotel’s cyclical story
People are more likely to go on holiday when they have disposable income. During a bear market, people try to make ends meet by cutting back on luxuries. The hotel industry is therefore highly cyclical. Furthermore, around one quarter of easyHotel’s customers are from the UK. This factor, coupled with the cyclical nature of tourism, could mean that easyHotel may benefit from an economic recovery across Britain. Indeed, this may help to explain why the firm’s fundamentals have been improving.
In the twelve months to March 2014, earnings per share grew from 1p to 1.6p. Revenues jumped from £2 million to £2.7m and net income leaped from £0.6m to £1.3m. As such, earnings per share grew by 73% and sales grew by 35%. Furthermore, because hotels operate at a relatively fixed cost, easyHotel has been able to stretch operating margins from 34% (2014) to 44% (2013) as demand picked up.
One of our favourite tools to assess a company’s fundamentals is the Piotroski F-Score which identifies companies with improving fundamentals. It…
