The Mantra Group Ltd (ASX: MTR) share price has been among the worst performers on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) in the last 12 months with an 18% decline.
I believe this has left its shares trading at a level that makes it a great buy and hold investment option. Here are four reasons why:
Chinese tourism.
Recent ABS data revealed a record total of 713,500 short-term visitor arrivals in February, up 7.7% on the prior corresponding period. A key driver in the boom has been the meteoric rise in Chinese tourism. Last year 1.2 million Chinese visitors arrived on our shores, up 17% year-on-year. According to Chinese government data, this makes Australia the eighth most popular destination for its tourists. With China's middle class expected to grow at a very strong rate over the next decade, I expect the number of tourists to grow as well. As a leading accommodation provider I believe Mantra should benefit from higher occupancy levels and average room rates.
Weaker Australian dollar.
Another reason why tourists have flocked to Australia is our weakening currency, which I think could weaken further still. The U.S. Federal Reserve looks likely to raise interest rates twice more this year, whereas I feel the Reserve Bank will at best hold rates at 1.5% until well into 2018. Furthermore, there is a strong correlation between the iron ore price and the Australian dollar. I'm bearish on iron ore and expect it to drop into the US$50 to US$60 a tonne range over the next few months.
Its shares are good value.
At this point in time I think Mantra's shares are much better value than rival Crown Resorts Ltd (ASX: CWN). Whilst both companies will benefit from the same tailwinds, I'd much rather buy Mantra at 20x trailing earnings than Crown Resorts at 25x trailing earnings. Especially considering Crown's ongoing troubles in the China market.
Its generous dividend.
Mantra's shares currently provide a trailing fully franked 3.5% dividend. Whilst there are bigger yields on the market, I believe the tailwinds from the tourism boom will allow the company to grow its dividend at a rapid pace over the next decade.
Finally, an investment in Mantra is not without risk. The company's CBD portfolio has been a big disappointment in the last 12 months, offsetting the strong performance of its Resorts portfolio. Whilst I feel confident that management has addressed these issues now and that improvements will be seen in future results, there is still a danger that it could act as drag on its future results.
But overall I think there is a compelling risk/reward on offer here for investors. As a result I would class Mantra as a buy.
