Here’s why the Mantra Group share price is soaring today

Credit: Kevin Dooley

It has been a good day for shareholders of accommodation operator Mantra Group Ltd (ASX: MTR) who have seen its share price climb by 4% to $4.12 so far today.

I believe today’s rise in its share price can be put down to a couple of things. Firstly, there has been a lot of talk of softness in the travel industry which has dragged a number of shares down in the last few weeks.

But these declines came to an abrupt halt today following the release of a market update from Webjet Limited (ASX: WEB). Webjet’s management team responded to speculation of softness in the industry by stating that it is experiencing strong demand from both consumers and businesses.

As you would expect, its share price has rocketed on the news and taken Flight Centre Travel Group Ltd (ASX: FLT) and Corporate Travel Management Ltd (ASX: CTD) with it.

A thriving domestic travel industry should be good news for Mantra Group and its collection of over 13,000 rooms across Australia, New Zealand and Bali. As will the recent weakening of the Australian dollar which could help to sustain the growth in inbound tourism.

The other news which has recently been released that could also be playing its part in sending the share price higher is its acquisition of Hawaii’s ALM Management Services LLC for US$52.5 million. ALM Management Services is the operator of the Ala Moana Hotel in Honolulu, and marks the company’s first foray into the United States.

This acquisition will add a further 1,086 rooms to the company’s arsenal, and is expected to contribute approximately US$7 million in underlying EBITDAI in its first full year.

Mantra Group decided to raise the funds for the acquisition through an equity raising. The placement raised $107 million through the issue of approximately 27 million shares at an issue price of $3.95 per share. This worked out to be a 1.5% discount to Mantra Group’s share price at the market close on May 17.

I like Mantra Group and think it is a good investment. However, its long-term prospects are questionable with the rise of Airbnb. Some market commentators think that Airbnb may ultimately have the same effect on Mantra Group as Uber had on Cabcharge Australia Limited (ASX: CAB). Cabcharge’s share price has plunged 38% over the past 5 years.

That would be a disaster for the company and its shareholders. For this reason, I would be keeping a close eye on its future results to look for any sign of weakness forming. Until then, I expect the shares to provide solid returns thanks to the tourism boom we are experiencing currently.

Whilst I believe Mantra Group should prove to be a good investment,  these three blue chip shares could be even better investments today. Definitely worth taking a closer look at if you ask me.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. 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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