Egnatia Financial Services are maintaining their sell recommendation and price target of 14.5 cent on A. Tsokkos Hotels Pcl (TSH) following the release of the first half results, which showed a decline in profitability.
TSH released a lower set of 1H06 results posting a 21.2% YoY decrease in net profit to CYP 490.419, vs. Egnatia’s estimate of CYP 515.000 and CYP 622.709 in profit a year ago in the same period.
Bottom line profitability was burdened by a lower share of profits from associated companies and a lower amount relating to unrealised gains from translation adjustments. These figures add up to CYP 290k.
Total Revenue decreased by 4.5% YoY to CYP 5.9 mln compared to CYP 6.2 mln in
1H05. This is mainly attributed to a decrease in revenues from local operations (-4.6% YoY), as fewer hotel units were operational during the first quarter of the year compared to the first quarter of 2005. Revenues from the hotel in Egypt were recorded unchanged compared to 1H05 at CYP 342k.
Operating expenses were contained by 7.8% to CYP 4.67 mln, leading to an improved gross profit of CYP 1.24 mln in 1H06, compared to CYP 1.13 mln in 1H05.
Accordingly, gross profit margin improved by 280 bps YoY in 1H06 to 21.0%.
EBITDA improved by 2.8% YoY to CYP 1.47 mln, despite the higher administration expenses amounting to CYP 324k (+10.6% YoY). In terms of revenue administration expenses increased by 80bps to YoY to 5%.
Despite lower financing expenses (-7.8% YoY), bottom line profitability was burdened by a lower amount of unrealised gains from translation adjustments (CYP 236k) and at a lower share of profits from associated companies (CYP 55k).
EPS was recorded at 0.20 cent vs. 0.25 cent in 1H05. Adjusted Net Profit for 1H06 comes to CYP 461k vs CYP 359k in 1H05.
In another development, the Company’s BoD will proceed to negotiations for the acquisition of Diomedes Hotels Ltd, which owns 50% of the share capital of Iliada Beach Hotel (4 star hotel: 112 rooms), Antigoni Hotel (3 star hotel: 172 rooms) and Flora Hotel Apartments (28 apartments) all in the Protaras area.
Despite the lower set of 1H06 results, TSH’s operating profitability marked a moderate improvement with operating costs been successfully contained and margins improving. Egnatia recall that, due to the seasonality of the local tourism sector, TSH’s first and last quarters of the year are generally the weaker, whilst the third quarter is the strongest. We also highlight TSH’s recent acquisition spree of a number of hotel units in prime locations in Protaras and Ayia Napa thus leaving a lot of strategy issues to be discussed.
