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Hotel operator Mantra Group Ltd flagged as takeover target

The Australian newspaper is reporting that nationwide hotel operator Mantra Group Ltd (ASX: MTR) could be a takeover target as its market value slides, despite the group boasting some strong underlying profit growth on the back of growing inbound tourism.

The Australian’s journalists are suggesting that the world’s largest hotel chain in NYSE-listed InterContinental Hotel Group may be interested in a takeover bid, as it looks to harness the strong tailwinds supporting tourism in Australia.

Moreover, Australia’s major cities in Sydney and Melbourne remain under-served in terms of total hotel rooms as occupancy rates remain relatively high due to a shortage of supply and rising demand. Importantly this helps support average room rates across seasons.

Mantra is the business behind the Mantra, Breakfree and Peppers hotel brands, which helped it grow H1 2017 revenues 15.9% to $356.2 million and profits 25.9% to $30.5 million. Despite the strong growth over the six-month period ending December 31 2016 the shares are down 39% over the past year and the value proposition alongside the lower Australian dollar is probably whetting the appetite of overseas bidders.

InterContinental Hotel Group has the financial firepower to swallow a business like Mantra and also operates a similar capital light lease-back, letting rights, and quasi franchised business hotel operations business model that does not involve taking on huge amounts of debt to buy expensive bricks-and-mortar hotel assets.

The Australian has even reported “a source” of the newspaper informing it that rival ASX-listed Australian cinema and hotel operator Event Hospitality and Entertainment Ltd (ASX: EVT) could be an interested buyer given it also operates in the same space. The newspaper has also previously reported “sources” telling it that supermarket chain Woolworths Limited (ASX: WOW) is a takeover target for private equity groups, although little came of that speculation.

Mantra has reportedly knocked-back the speculation, although I think its shares look buy at $2.70 on a lower earnings multiple with an expected yield in the region of 5% over the year ahead according to analysts’ forecasts.

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Motley Fool contributor Tom Richardson owns shares of Event Hospitality & Entertainment and MANTRA GRP FPO.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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