Orbis in no rush to nail down new financing or find strategic partner
While the company sees no need to rush out for new capital, it also is content with the Treasury Ministry's strategy of waiting before seeking a strategic investor for Orbis.
"A strategic investor may help when we go out to other markets after 2002," Weglowski said. "There are other ways of getting the necessary know-how, such as through franchising agreements."
And as for financing Orbis's ambitious capital expenditure program, the company feels it has a strategy nailed down.
"Half of the $300 million capital outlays planned for 1998-2002 will be financed with our own generated profit and amortization," Weglowski said. "Forty-three million dollars was raised last year through a share issue, $20 million is cash and we'll go to the market to get the remaining $80 million."
As a result, in decreasing its 69% stake, the Treasury Ministry has chosen to sell a portion of its shares rather than dilute its holding through a capital increase. The ministry expects this week to finalize the sale of 15% of its stock to financial investors.
The government is choosing to sell to financial investors because like the company it does not feel the need to find a strategic investor at the moment.
"The ministry thinks that the company is still undervalued and that it would sell it at a much higher price in two or three years," said Zbigniew lapinski, an analyst with Deutsche Bank Research.
Marcin Sadlej, an analyst at CDM Pekao Securities, said that a financial investor would help boost the company's value "if the strategy adopted by the company is continued." This strategy calls for the upgrade and modernization of many of the company's hotel properties in key locations around the country.
However, both Sadlej and lapinski said the company, which floated 15% on the Warsaw Stock Exchange (WSE) in November 1997, must ultimately find a strategic investor.
"Finding a strategic investor is inevitable," lapinski said. "It would be better for Orbis to cooperate with a large, international operator than to try to compete with it."
According to lapinski, who was one of the authors of a May 12 report on the company, Orbis is attractive for both strategic and financial investors, despite its relative small size in comparison to European hotel companies.
"It is a growth story, not a value story," he said. Orbis has a 42% share of the market in terms of hotel rooms and its 55 hotels are present in attractive locations, such as large towns and popular resorts.
Deutsche Bank gave the shares an "outperform" recommendation as a result. The investment house's call means it expects the shares to outperform the WSE's WIG Index.
In addition to its strong market position, the company is growing more efficient and is modernizing, lapinski said. "The growth of revenue is not very rapid but margins are increasing," he added.
lapinski expects Orbis's net profit margin to top 10% in the year 2001, up from 7.9% last year and 4.9% in 1997. At the same time, gross margins should grow to 37.2% in 2001 compared to 33.7% in 1998. Margins will improve due to increases in room rates and effective cost controls, the Deutsche Bank report said.
Net profit is also growing at a healthy level. In 1999, net profit is expected to hit zl. 87 million ($21.7 million), up 25% over the previous year. In 1998 net profit rose 97.5% against 1997 results.
At the current market price of zl. 36.50, Orbis is trading at 23.2 times estimated 1999 earnings. "The fair net asset valuation implies equity value per share of zl. 41," the Deutsche Bank report read. "Relative to European hotel and leisure groups, Orbis is trading at a small discount."
"A strategic investor may help when we go out to other markets after 2002," Weglowski said. "There are other ways of getting the necessary know-how, such as through franchising agreements."
And as for financing Orbis's ambitious capital expenditure program, the company feels it has a strategy nailed down.
"Half of the $300 million capital outlays planned for 1998-2002 will be financed with our own generated profit and amortization," Weglowski said. "Forty-three million dollars was raised last year through a share issue, $20 million is cash and we'll go to the market to get the remaining $80 million."
As a result, in decreasing its 69% stake, the Treasury Ministry has chosen to sell a portion of its shares rather than dilute its holding through a capital increase. The ministry expects this week to finalize the sale of 15% of its stock to financial investors.
The government is choosing to sell to financial investors because like the company it does not feel the need to find a strategic investor at the moment.
"The ministry thinks that the company is still undervalued and that it would sell it at a much higher price in two or three years," said Zbigniew lapinski, an analyst with Deutsche Bank Research.
Marcin Sadlej, an analyst at CDM Pekao Securities, said that a financial investor would help boost the company's value "if the strategy adopted by the company is continued." This strategy calls for the upgrade and modernization of many of the company's hotel properties in key locations around the country.
However, both Sadlej and lapinski said the company, which floated 15% on the Warsaw Stock Exchange (WSE) in November 1997, must ultimately find a strategic investor.
"Finding a strategic investor is inevitable," lapinski said. "It would be better for Orbis to cooperate with a large, international operator than to try to compete with it."
According to lapinski, who was one of the authors of a May 12 report on the company, Orbis is attractive for both strategic and financial investors, despite its relative small size in comparison to European hotel companies.
"It is a growth story, not a value story," he said. Orbis has a 42% share of the market in terms of hotel rooms and its 55 hotels are present in attractive locations, such as large towns and popular resorts.
Deutsche Bank gave the shares an "outperform" recommendation as a result. The investment house's call means it expects the shares to outperform the WSE's WIG Index.
In addition to its strong market position, the company is growing more efficient and is modernizing, lapinski said. "The growth of revenue is not very rapid but margins are increasing," he added.
lapinski expects Orbis's net profit margin to top 10% in the year 2001, up from 7.9% last year and 4.9% in 1997. At the same time, gross margins should grow to 37.2% in 2001 compared to 33.7% in 1998. Margins will improve due to increases in room rates and effective cost controls, the Deutsche Bank report said.
Net profit is also growing at a healthy level. In 1999, net profit is expected to hit zl. 87 million ($21.7 million), up 25% over the previous year. In 1998 net profit rose 97.5% against 1997 results.
At the current market price of zl. 36.50, Orbis is trading at 23.2 times estimated 1999 earnings. "The fair net asset valuation implies equity value per share of zl. 41," the Deutsche Bank report read. "Relative to European hotel and leisure groups, Orbis is trading at a small discount."
