Club Med embarks on overheated holiday escape

Tongcheng Travel Holdings

13/12/2018 01:45

(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)
    By Sharon Lam
    HONG KONG, Dec 13 (Reuters Breakingviews) - Club Med is
getting a cheerful sendoff. A sale of shares in the holiday
resorts owned by Chinese conglomerate Fosun International
 0656.HK  was priced at the lower end of an indicated range. The
valuation, however, puts it on a par with its most richly valued
competitors. Sluggish travelling trends could burn optimistic
investors.
    Fosun Tourism  1992.HK , the division that houses Club Med,
sold some 214 million shares at HK$15.60 apiece, or about $428
million. The deal for 17.5 percent of the company imputes a
market capitalisation of $2.4 billion. Add nearly $700 million
in net debt as of June 2018, and the enterprise value reaches
$3.1 billion.
    Last year, Fosun Tourism – whose all-inclusive Club Med
getaways stretch from Florida to Bali – generated adjusted
EBITDA of $135 million, after a 37 percent increase from 2016.
Generously assume growth at the same rate again and it would
equal $185 million for 2018 – and be worth nearly 17 times
expected EBITDA. 
    On that basis, Club Med sits in the lap of luxury,
especially considering it lost money in the first half of the
year. A group of eight related tourism-based companies,
including hotelier Hilton Worldwide  HLT.N , fetch a forward
multiple closer to 11 times. Upscale Asian competitors such as
Banyan Tree  BANY.SI  and Shangri-La Hotels and Resorts
 0069.HK , however, trade at more than 14 times expected EBITDA.
    There are ways to justify some of the exuberance. Club Med
has made strides repositioning itself as a more deluxe brand
under Guo Guangchang’s Fosun. And the pricey, new $1.7 billion
Atlantis resort in southern China recently opened its doors, as
part of a strategy to attract mainland travellers.
    So far, though, the results have been tepid. Customers from
the Asia Pacific region have accounted for only about 15 percent
of Fosun Tourism revenue in each of the last three years. The
industry more broadly also has seen warmer days. Last month,
Tencent-backed  0700.HK  travel booking firm Tongcheng-Elong
 0780.HK  slashed the size of its own initial public offering.
Shares of luggage-maker Samsonite  1910.HK  and Ctrip  CTRP.O ,
the Chinese online travel site operator, have been rattled by
trade tensions and worries about a consumer slowdown. Buying
into Club Med now may not be nearly as relaxing as heading to
one of its resorts.
    On Twitter https://twitter.com/sharonlamhk
    
    CONTEXT NEWS
    - Fosun Tourism Group, operator of Club Med Resorts, said on
Dec. 7 it had raised $428 million in its initial public offering
after pricing shares at the lower end of an indicated range.
    - The deal values Fosun Tourism, part of Chinese
conglomerate Fosun International, at about $2.4 billion. 
    - Step Ahead International, China Suchuang Energy, and
Taobao China Holding are cornerstone investors for the IPO. 
    - Fosun Tourism Group is due to begin trading on Dec. 14. 
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    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Fosun filing    http://www3.hkexnews.hk/listedco/listconews/SEHK/2018/1130/LTN20181130085.pdf
China's Fosun Tourism raises $428 million in Club Med HK IPO   
 urn:newsml:reuters.com:*:nL4N1YC1UH
BREAKINGVIEWS—Club med spinoff could be no day at the beach   
 urn:newsml:reuters.com:*:nL3N1W01OP
BREAKINGVIEWS –Chinese tourists leave investors holding the bag 
   urn:newsml:reuters.com:*:nL4N1XP010
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Editing by Jeffrey Goldfarb and Katrina Hamlin)
 ((sharon.lam@thomsonreuters.com; Reuters Messaging:
sharon.lam.thomsonreuters.com@reuters.net))