Action Hotels: Action Hotels' Australian expansion looks prescient

Action Hotels PLC's (LON:AHCG) move to set up a division in Australia in addition to its Middle East operations is looking prescient. While the hotel industry in the Middle East faces challenges, the Australian market remains buoyant. Established in 2005, Action is an owner, developer and asset manager of branded three and four-star hotels primarily for business travellers. Currently, the AIM-listed group has 14 operating hotels with 2,623 rooms. Typically, Action allies itself with one of the largest hotels chains. Of its current portfolio, four are in Australia and ten are in the Middle East, mainly in Oman, Saudi Arabia and UAE. Challenging conditions As a consequence of lower oil prices the Middle East and North African hospitality market has been flat recently. Reduced government and private sector spending have led to muted growth resulting in a drop in Revenue Per Available Room (RevPAR), the hotel industry's key metric. However, Action's focus is on the economy and mid-scale hotel market, markets that have seen less of a decline in RevPAR compared to many of the luxury and upper upscale hotels in the region. Even so, the opening of two of its Middle Eastern hotels in Saudi Arabia has been delayed though the Mercure Riyadh Hotel will open in 2019. Longer term, Action Hotels remains confident it is in the right place as the Gulf Cooperation Council remains one of the largest growing markets in the world. Australia a counterweight In the meantime, the Australia market remains buoyant with no slowdown in growth and provides a good counterbalance to the Middle East. In April, for example, the Novotel Melbourne South Wharf hotel opened ahead of schedule with advance bookings of over AUS$3.5mln. Trading in line Action Hotels recently said results for the year ended 31 December 2017 will be broadly in line with market expectations. Revenue will be US$58.3mln (from US$53mln a year ago) and adjusted underlying earnings (EBITDA) US$15.2mln. Current year revenues were 8.9% ahead of last year (6.4% on a like for like basis; excluding the recently opened ibis Styles Bahrain) while the recently opened hotels in Sohar Oman and Brisbane Australia were showing revenue growth year-on-year. However, the loss before tax is expected to come in materially higher than expected at US$12.2mln due to the company not being able to capitalise some interest costs, early repayment fees and a higher than forecast depreciation charge. Strong board backing Action is well-supported financially. Sheikh Mubarak A M Al-Sabah is the chairman and he is a strong supporter of the company. An unsecured US$15mln loan agreement, for instance, was recently agreed with EBLA Computer Consultancy, a company 30% owned by the chairman.