Wednesday, May 18, 2016

71st AIM Student Equity Update by Clare McNamara. Belmond (BEL) "Well-Positioned for Strong Growth with New Management"

Belmond Ltd. (BEL, $9.59): “The Best is Yet to Come”
By: Clare McNamara, AIM student at Marquette University



Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

 Summary

Belmond Ltd. (NYSE:BEL) is a luxury hotel and travel operator headquartered in Bermuda, but has hotels, trains, river cruises, and one stand-alone restaurant strategically positioned in exotic destinations around the globe.
• Belmond beats earnings estimates for FY2015 for the first time in what feels like forever for investors – and beats again for Q1.
• New management has new ideas that are just starting to maximize margins and increase earnings – what do they have to say about it?
•  What Belmond is doing on the ground to implement their new ideas.
• BEL could be heading to new 50-day highs, most recently breaking its 50-day average in a bullish manner.

Key points: Belmond remains 'in-play’ as H. Roeland Vos, the new CEO, has not even been with the company for a full year yet and is already making a major impact on earnings. Vos is an instrumental part of the remodeling of Belmond and understands the need to put ‘boots on the ground’ research in this industry. He has already visited every single hotel, train, and river cruise in the past few months in order to understand each how unique business works depending on the location. The new COO, Philippe Cassis, has taken the same stance as Vos and visited the properties in under three months since he was named COO. This shows how influential of a leader Vos is in fostering a culture within the company, which will be essential moving forward.

In the most recent earnings call, Vos indicated that the company has raised guidance for RevPAR growth in FY2016 to around 3% to 7%. This is because they are not only planning on aggressive growth strategies for the company, but estimating they will be implemented within the year as well. These strategies include driving top-line growth and bottom-line results at existing properties, increasing brand awareness, and broadening their global footprint. His aggressive strategy has already begun to work with earnings, beating estimates by 400% for Q4 2015 and 75% for Q1 2016.

Part of this is due to Vos reorganizing the company’s structure to make it flow better, by breaking down previously existing silos in revenue management and sales related functions. Vos has put a lot of trust into Cassis, having all of these functions now report to him. However, this has proven a successful bet for Vos with RevPAR already up by 9% over the past quarter due to this, helping them increase the earnings for that quarter. This is just the beginning of this resource realignment and will lead to even further expansion of EBITDA margins in the coming year.

On top of all this, BEL is set to grow top line revenue because of a few different projects they are taking on at certain locations. They are attempting to increase their capacity without increasing costs. Some locations have increased their sizes by a few rooms and suites while others have created completely new suites – for example, they have moved around employee spaces in order to capitalize on special ocean views for new suites without having to expand the property.

What has the stock done lately?
Since Vos took over as CEO in September 2015, the stock is still down by ~6%. It was trading around $10 in September 2015 and is almost back at that point. However, it has broke it’s 50-day moving average twice within the past few months in a bullish manner. If everything goes as planned for BEL, there could be some major momentum in the stock.

Past Year Performance: BEL has had a tough year with turnover in two major management roles. The stock is down ~33% from where it was a year ago. The changes in management had an especially bad effect on its performance in January right before earnings, where it reached its trough at $7.68. However, it has been on the rise since then, with less volatility.


Source: Google Finance

My Takeaway
Vos has obviously made his voice heard and it is beginning to echo through the core of the business with strategies beginning to change. These changes have been fast-tracked and are already beginning to have a positive effect on earnings, soaring past expectations the past two quarters. Although the stock is moving in a very bullish manner recently, I think there is still time to get in this stock and that the expansion of the company is just beginning – the best is yet to come.



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