A huge slug of new cash, a major new shareholder and acceleration of growth plans suggests a new lease of life at EasyHotel (EZH:AIM). Buy at 94.7p.

We like the company’s clear focus on only pursuing opportunities which can deliver a good return on investment.

It targets a minimum 15% return on capital employed and that’s been achieved so far at its three owned hotels in the UK, according to the company.

EasyHotel has 21 operational hotels in many different countries including Germany, Netherlands and Switzerland. It sees potential for approximately 12,000 rooms owned by the group and 15,000 rooms under franchise agreements in the UK and Europe.

A recent deal was struck in Turkey with a local construction and tourism group to develop an EasyHotel site in Istanbul. Franchise sites are also planned for Portugal, Brussels and Dubai, among other locations.

Shareholders will be called to vote on 14 October for plans to issue new shares at 100p to raise £38m. That is nearly two thirds the current market cap (£59m). Interestingly the new stock has been priced at 18% above the market price on the eve of the announcement. It only took a few hours to place the stock with existing and new investors, showing there is strong support for the expansion plans.

Real estate fund ICAMAP is taking the biggest slice of the new shares, giving it a 29.3% stake in the group.

EasyHotel says its priority is now the UK. We believe the low-cost hotelier should be well placed to prosper from the current uncertain economic climate. Budget brands outperformed the market during the last UK recession so EasyHotel could do well if Brexit preparations trigger another economic downturn in this country.

It is presently converting properties into EasyHotel sites in Birmingham, Liverpool and Manchester, all expected to open between February and April 2017. New hotels in Ipswich and Barcelona follow in July 2017 and early 2018 respectively.

The £38m of new money has been earmarked for five potential new sites; three in England, one in Wales and one in Europe. A further nine hotel developments are under evaluation, says the company.

We’d urge investors not to use the traditional metric to earnings (PE) valuation method when looking at the stock. That doesn’t take into account a potential significant increase in scale over the next few years.

EasyHotel is a profitable business with a low-cost model that should stand it well during good and bad economic conditions.

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