Mantra Group Ltd jumps on broker upgrade: Is it a bargain?

Credit: Kevin Dooley

The shares of Mantra Group Ltd (ASX: MTR) have bounced off their 52-week low of $3.04 following news that the leading Australian accommodation and hotel operator has been upgraded by a US-based investment bank.

A research note released today by Moelis & Company rated Mantra a buy with a $4.00 price target. This would imply upside of close to 30% for investors and will undoubtedly be some relief for existing shareholders.

It is fair to say that shareholders of Mantra have had a terrible 2016. Year to date its share price has dropped by no less than 39% from its high of $5.26, with many investors seemingly concerned that it could face disruption by US-based sharing accommodation giant Airbnb.

Earlier this year The Australian Financial Review reported that analysts at Citi felt Mantra’s BreakFree brand was most at risk from Airbnb, with fears that some property owners may choose to bypass Mantra and instead list with Airbnb in the future.

However, Mantra’s chief executive officer Bob East downplayed Citi’s report. He feels Mantra has a bright future and believes that location is ultimately key for most visitors. Which is something that Mantra’s extensive property portfolio certainly excels at. Mantra currently has over 20,500 rooms under management in 125 properties across Australia, New Zealand, Bali, and Hawaii. This positions it well to capture the growth in tourism worldwide.

I would have to agree with Moelis & Company and believe that the current share price is a great entry point. At a time when companies like Mantra, Crown Resorts Ltd (ASX: CWN), Sealink Travel Group Ltd (ASX: SLK), and Webjet Limited (ASX: WEB) are thriving from these increasing levels of tourism, to catch Mantra at a 52-week low could prove to be a real bargain.

The company delivered sales growth of almost 22% in its half-year results. With Tourism Australia stating that it expects tourism into Australia to rise by 5.6% to 7.9 million in the 2016/17 season, I expect the demand this creates will help keep Mantra’s top line growing at a strong rate for some time.

As well as the potential share price gains that may be ahead, investors may find its solid dividend another reason to invest. According to CommSec in FY 2017 the company is forecast to pay an estimated fully franked 5% dividend.

Foolish takeaway

Overall, at the current price I believe Mantra is a great investment today. I think the tailwinds of a booming tourism industry should help keep earnings and its dividend growing for some time to come.

Lastly, if you're looking for more ideas for your portfolio then I would highly recommend checking out these three new breed blue chip shares. Like Mantra, each pays a solid fully franked dividend and has the potential to climb higher in the next few months.

Why These 3 Blue Chip Shares Are Set to Soar in 2016

Discover The Motley Fool's Top 3 blue chips for 2016. These 3 'new breed' shares pay fully franked dividends AND offer the prospect of significant capital appreciation. Simply click here to gain access to this comprehensive FREE investment report.

No credit card required!

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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.