Dalata could hold 10,000 UK rooms by 2026, Davy says

The Republic’s largest hotel group, Dalata, could quadruple the number of hotel rooms it has in the UK by 2026, bringing its total to 10,000, its joint broker Davy said in a research note.

The owner of the Clayton and Maldron hotel brands has about 2,400 rooms in the UK at present and a potential pipeline of 7,500 rooms. Between this year and next, the company is expected to target cities including Edinburgh, Liverpool, York and Brighton, according to Davy analysts Joseph Quinn and Michael Mitchell.

"Five years on from its IPO, Dalata is firmly placed as the leading hotel operator in Ireland with a clear and growing presence in the UK," the analysts said, raising their price target on the stock from €7 to €7.50.

Additionally, Davy forecast earnings in Dublin to increase to over €106 million over the next five years from €86.4 million recorded last year.

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But it is in UK cities that the most growth is expected as Dalata targets market share of up to 15 per cent in the three- and four-star market. “Analysis of the three- and four-star brands among Dalata’s target cities highlights a very fragmented market with no dominant brand like we see in the budget sector,” the analysts said.

Free cash flow

Dalata’s free cash flow has also proved attractive and Davy expects its net debt to earnings to drop below 1.5 times by 2021. It has held at about two times earnings for the past number of years.

“We believe this falling net debt/ebitda will see Dalata look to deploy capital on earnings enhancing fixed assets – similar to its recent transaction in London,” the analysts added.

At the company's annual general meeting on Thursday, the listed hotel group's chief executive, Pat McCann, said the company expected to be active in mainland Europe within five years but was "in no rush" to expand beyond its core markets.

Dalata has more than 9,000 rooms across its portfolio having opened its latest premises, Clayton Hotel City of London, in January.