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Is a takeover bid coming for Mantra Group Ltd?

Shares in hotels and leisure business Mantra Group Ltd (ASX: MTR) have lifted 17% over the last three months as media reports continue to suggest that the group could be subject to a takeover bid.

According to The Australian a Thai hotel conglomerate named as Minor International may be interested in Mantra, with another potential suitor in U.S. hotel giant Marriott also reported to be running the ruler over the Aussie hotelier.

Recently, another mid-sized listed company on the ASX in iSentia Group Ltd (ASX: ISD) is reported to have received takeover interest from an overseas buyer, as the weaker Australian dollar serves to heighten interest in potentially undervalued Australian companies.

Today Mantra shares change hands for $3.10 each, although at the end of 2015 they were above $5 as the operator of the Peppers, Mantra, and BreakFree hotel chains continues to enjoy buoyant conditions across Australia’s tourism sector.

For the six-month period ending December 31 2016 the group grew underlying earnings per share 3.7% to 10.7 cents, with a dividend of 5 cents per share. This means it trades on around 14.5x underlying annualised earnings per share, with an annualised yield around 3.2%.

Holding back the valuation is the fact that net debt stood at $83.6 million as at December 2016, which is moderate at slightly below 1x forecast full year underlying EBITDAI of $101 million to $107 million.

Outlook

The group has some reasonable tailwinds in the form of inbound tourism from Asia in particular, while the weaker Australian dollar is also providing support to a domestic tourism sector that is at a competitive disadvantage versus its cheaper Asian rivals.

Mantra’s growth options are both organic via higher occupancy rates and acquisitive by acquiring more properties as it has done recently in Hawaii, Australia and New Zealand.

Another hotel and leisure business worth a look on the ASX is Event Hospitality & Entertainment Ltd (ASX: EVT), while the likes of Sydney Airport Holdings Ltd (ASX: SYD) and Qantas Airways Limited (ASX: QAN) also offer leverage to the growth of inbound tourism.

Any takeover bid for Mantra would likely need to be at around a 20% premium to the current share price to have a serious chance of success, which would mean a bid around $3.70 per share. I would not be all that surprised if a large hotel group like Marriott does come up with an offer. Even if a takeover never appears Mantra’s mix of value, income and growth may offer investors market-crushing returns over a 3 to 5-year time horizon.

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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 owns shares of Event Hospitality & Entertainment and Sydney Airport Holdings Limited. 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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