Mediocre results for Orbis predicted
Growing competition and falling occupancy rates are being blamed for predicted lackluster third-quarter results for Polish hotel chain Orbis, due to be released this week.
"I think that (this year's) results will be even lower (than last year)," said Grzegorz Latala, analyst at Raiffeisen Capital & Investment Polska. "It's because of growing competition on the market."
Last year, Orbis made a net profit of zl. 90 million ($23.1 million) on zl. 789 million ($202.3 million) in revenue. Analysts said that increased competition and a drop in tourism have affected occupancy rates. "Orbis' results won't grow this year due to low occupancy," said an analyst at Societe Generale. Orbis' occupancy rate in the first half of this year was 52%, and analysts said that figure would drop even further.
Robert Chojnacki, analyst at BM BGz brokerage, said that Orbis' weak results were not a surprise. He pointed to France's Accor, the hotel operator's strategic investor, which purchased 20% of Orbis' share capital last August. Chojnacki said that Orbis is going to have to invest a substantial amount of cash over the next few years to bring its chain of hotels up to Accor's standards.
Accor Polska was part of a consortium that bought a 35.76% stake in the hotel operator. FIC Globe, an investment fund affiliated with Deutsche Bank, purchased 9.9% and Globe Trade Center, a Polish developer, 5%.
"The question regarding the integration of Orbis and Accor is the most important one now," Chojnacki said.
How that will happen, though, remains to be seen. Analysts agreed that the most probable option would be for Accor's five existing hotels, with six under construction and several others planned, to be contributed in-kind to Orbis. In exchange, Orbis will make a share issue aimed at Accor.
"Yes, the share issue is very probable, but not necessary," Chojnacki said. "After all, Accor is not the only investor in Orbis."
According to Anna Hess, an analyst at CDM Pekao Securities, Orbis is not going to invest in its subsidiaries Orbis Travel and Orbis Transport. She said that Orbis owns a 33% stake in Orbis Casino, 79.9% of Orbis Transport and 68.4% of Orbis Travel.
Hess said earlier planned investments were put on hold while Orbis waited for a strategic investor. Chojnacki said that new facilities were going ahead but these investments included modernizing Orbis' existing hotels, which started in 1998 and were planned for completion in 2002. Orbis budgeted $294 million to modernize 7,500 hotel rooms over five years, about 75% of its total number of rooms.
The Orbis chain comprises 56 hotels with over 10,000 rooms.
"The company hasn't built any new facilities, but that will certainly change now," Chojnacki said. He said the company has plans for a lower-priced chain of two-star hotels. They will operate under the Etap Hotel name, a well-known (Accor) brand in France. The new hotels will be located along future motorways. According to Chojnacki, development of the project will start in 2002.
"(Until 2002), the company will concentrate on adjusting the 29 Orbis hotels to Accor's standards," he said, referring to the number of hotels that Orbis and Accor have structured into a franchise agreement. Under the plan, the hotels will still be owned by Orbis, but managed by Accor and operated under the French hotel's Ibis, Novotel, Mercure and Sofitel brands.
On Friday, Orbis' share price closed at zl. 23, up 0.3% on the week. That figure represents a 40% drop over the last six months a number that isn't expected to change in the near term, analysts said. Raiffeisen's Latala, who values the stock at zl. 30 a share, gave Orbis a "neutral" recommendation after Friday's close. "And I don't believe there will be any improvement during the next few years," he said.
