Marriott: Quick View

Although Q2 results were in line, investor disappointment at even modest slippage -- notably in RevPAR and unit growth -- shows the extent to which expectations have been raised by recent guidance. In fact, trading remains buoyant (no sign of structural slowdown) and 2012 earnings and a return of capital targets have been confirmed. Key group business in the U.S. goes from strength to strength, while there is less exposure than its peers to short-term weakness in Chinese secondary markets.

Q2 Results On Track But With Unexpected Make-Up
While gains in RevPAR (6.7%), EBITDA (13%) and EPS (24%) were in line, and no less impressive for that, there was a potentially unsettling combination of a small shortfall in fee revenue and higher-than-expected G&A expenses. This was made good only by bumper owned-hotel earnings (London and Japan), non-recurrent items and an especially active buyback program ($400m against $150m in Q1).

Positive H2 Outlook Despite Concerns
Newly-raised EBITDA and EPS guidance for 2012 may reflect a capital gain and lower number of shares, but reiteration of systemwide RevPAR (6-8%) growth is welcome, given investor concern about (i) Europe (expected +3% in H212, as in Q212), (ii) softness in a few Asian and Middle East luxury markets and (iii) softness in non-gateway Chinese cities. U.S. fundamentals are positive, with a favourable supply environment encouraging a “very bullish” attitude to pricing and group bookings set to continue accelerating (+10% in H212). Room openings guidance has been cut for 2012 but held through 2014.

Valuation: Attractive
Marriott’s rating (c 12x prospective EV/EBITDA) is not expensive given the strength of its fee-based model, finances and brand equity. Multiple expansion as a pure lodging play is on the cards after the Timeshare spin-off, while promised ambitious returns of capital should be rewarded. Share-price setbacks on inevitable short-term upsets should provide a long-term buying opportunity.

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