Why the Redcape Hotel (ASX: RDC) share price is sliding today

The Redcape Hotel Group (ASX: RDC) share price has edged lower this afternoon after a trading and acquisition update ahead of the year end.

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The Redcape Hotel Group Pty Ltd (ASX: RDC) share price has slumped lower this afternoon after the group released a key trading update.

At the time of writing, the Redcape share price is sitting 0.53% lower at 93 cents per share.

Why is the Redcape Hotel share price sliding lower?

The Aussie hotel group provided a trading update alongside its interim distribution, debt extension and acquisition news.

According to the announcement, Redcape’s business is “performing strongly” as coronavirus restrictions continue to ease.

Operating earnings before interest, tax, depreciation and amortisation (EBITDA) is tipped to increase, despite higher COVID-related compliance operating costs.

Redcape is forecasting first half operating EBITDA to be $40–$40.5 million compared to $38.7 million in the first half of 2020. Distributable earnings is forecast to climb to $32–$32.5 million, up from $26.4 million in the first half.  

The increased forecasts are due to a strong trading quarter for the Aussie pubs business. Redcape also announced an interim distribution of 1.83 cents per stapled security to shareholders.

Redcape also provided an update on its financing and acquisition activities. The hotel group has secured an additional $100 million funding facility expiring in December 2025. That extends the weighted average maturity of the group’s debt to 4.1 years with total facilities of $600 million.

The group is expecting gearing to be maintained within its targeted range of 35% to 45% for the full year ending 30 June 2021.

Redcape also announced it has exchanged contracts to acquire the O’Donoghues Hotel. The pub is located in Emu Plains, New South Wales, with Redcape set to buy it for $30.5 million excluding transaction costs.

It’s the latest part of Redcape’s strategy to grow sustainable distributions for securityholders in the long term.

Redcape share price summary

The Redcape share price has fallen 17.0% lower in 2020 to 93 cents per share. Shares in the pubs business are trading at a 45.7 price to earnings (P/E) ratio, and on current pricing the company has a market capitalisation of $513.5 million.

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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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