Dalata downgraded to “neutral” as Pandox offer undershoots NAV

Investing.com -- Dalata Hotel Group (IR:DHG) has been downgraded to “neutral” from “buy” by UBS following a recommended €6.45 per share cash offer by Pandox Ireland, a company jointly owned by Pandox and Eiendomsspar, in a note dated Wednesday. 

The offer was announced on July 15, and is expected to be implemented through a Scheme of Arrangement by the fourth quarter of the year.

While the bid represents a 36% premium to Dalata’s share price prior to the strategic review, it is below the company’s last reported net asset value (NAV) of €6.67 and marginally under the closing price of €6.54 on July 14, the day before the offer. 

The discount to NAV and proximity to recent trading levels prompted UBS to conclude the stock is “up with events” and unlikely to offer further upside under current terms.

UBS maintained its price target of €6.70, based on a discounted cash flow model. At this valuation, shares would trade at 9.6x estimated 2025 EV/EBITDA. The downgrade reflects concerns about deal certainty and limited valuation headroom.

Dalata’s financial outlook remains steady. Revenue is projected to rise to €688.1m in 2025, up 5.5% year-on-year, while EBIT is expected to reach €170.7m, a 7.7% increase. 

Net earnings are forecast at €91.7m, up from €78.7m in 2024. EPS is estimated at €0.43 in 2025, recovering from €0.35 in the prior year.

However, valuation multiples are expanding. The 2025 P/E ratio is forecast at 15.2x, compared to 12.3x in 2024. 

Return on invested capital (ROIC) is seen edging up to 7.0%, still below pre-pandemic levels. The company’s net debt remains elevated at €990.8m, translating to a net debt-to-EBITDA ratio of 4.0x for 2025.

The equity free cash flow yield is expected to fall to 8.2% from 10.7% in 2024, while the dividend yield will slightly ease to 2.6%. Book value per share is forecast to rise to €6.99, with a price-to-book ratio of 0.9x. Operating cash flow is projected to grow 8.7% to €183.2m in 2025, with capital expenditure expected to represent 10.1% of revenue.

The offer is supported by Pandox, Eiendomsspar and Dalata directors, who collectively control approximately 11% of the company. 

A framework agreement is in place for Scandic Hotels to serve as the operating partner for the Dalata portfolio post-transaction. 

The scheme document is expected within 28 days of the announcement, after which the shareholder meeting timeline will be confirmed.