A drop in earnings from Mantra Group's city hotels put a damper on otherwise solid interim results as the country's second biggest hotel operator re-affirmed its full-year guidance.
Statutory profits rose 25.9 per cent to $30.5 million as the company benefited from property acquisitions and a strong domestic and overseas tourism market.
The underlying results, which better reflect the trading performance of the business, were more muted with net profits after tax up 15.1 per cent to $31.8 million and underlying net profits after tax and amortisation up 14.4 per cent to $33.1 million.
These results were slightly below those forecast by Citi Research which expected Mantra to report NPATA up 21 per cent to $34.9 million. Mantra shares fell more than six per cent soon after the results were published.
Earnings surged almost 30 per cent across Mantra's resorts business which benefited from rising overseas visitor numbers, but fell across Mantra's CBD hotel business due to weakening conditions in the resource-exposed markets of Perth, Brisbane and Darwin
Mantra Group chief executive officer Bob East said the company was on track to deliver earnings in line with guidance given in August 2016. Total group revenue was $356.2 million up 15.9 per cent on the December 2015 half-year.
Mr East said the rise in statutory profits was driven by four new properties acquired during the six month period "supported by organic growth as a result of the continued growth in domestic and international travel, an increase in the total number of rooms available across both the resorts and CBD operating segments, improved occupancy levels, higher average room rates in resorts and improved efficiencies in key areas of the business".
Over the period, Mantra made its biggest ever acquisition, buying the rights to the 1,176 room Mantra-branded Ala Moana Hotel in Honolulu Hawaii. Early February it snapped up management rights to almost 1000 apartments being built by developer Tim Gurner in Brisbane in a record $28 million deal.
Citi Research upgraded its recommendation on Mantra from Neutral to a Buy on January 31 with a target price of $3.30. The company will commence trading this morning at $3.02 giving it a market cap of just under $900 million. They peaked at over $5 in December 2015.
At the time of its recommendation, Mantra (at $2.69) was trading at a 26 per cent discount to hotel peers even though it has double the EPS growth.
"In our view, the current share price more than reflects our medium term concerns around i) Mantra's risk profile increasing from its acquisition strategy, ii) increases in supply and iii) the sharing economy," said Citi Research equities analyst Sam Teeger.
