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magazineProof that EasyHotel has fixed its problems
Guy Parsons’ first full year as chief executive of EasyHotel (EZH:AIM) has seen the low-cost operator outperform the broader UK hotel market, raise money at a premium to its market value and accelerate growth opportunities.
A 38.4% rise in pre-tax profit to £1.09m in the 12 months to 30 September 2016 is proof that the business model is working.
Initial setbacks
EasyHotel got off to a bad start when it floated on the stock market in 2014, raising only half the desired amount of money.
The company lost its finance director within six months of its IPO (initial public offering), and the CEO was replaced six months later.
Former Travelodge boss Parsons walked into a business that he described as lacking a decent growth pipeline and staff with the wrong experience. ‘There was only one other person who had worked in the hotel industry when I joined EasyHotel. It does help having people who’ve done it before.’
A better experience
He reset the strategy, brought in people who’d worked in budget hotels and quickly found investment opportunities for new hotels. The franchise side of the business was also strengthened.
More dynamic pricing systems have been introduced, charging progressively more as the accommodation date draws closer. It has also decided to make some rooms available through a select number of online travel agencies such as Booking.com. Those initiatives have helped to drive extra business, says Parsons.
EasyHotel raised £38m in September to fund new hotels. Five potential sites have been identified; three in England, one in Wales and one in Europe. It hopes to reveal the first location by the end of 2016.
Market sentiment has weakened towards the hotels sector as a result of rapid expansion by the large operators and the growing popularity of Airbnb which helps homeowners rent out rooms or whole properties on a short-term basis.
We believe EasyHotel can continue to outperform the market because of its low pricing point. Parsons says no-one really wants to stay in a budget hotel, yet they provide an ideal solution if you need somewhere cheap to stay because of a work trip, football match, wedding and so on.
He is confident EasyHotel has significant scope to grow in the UK despite a proliferation of budget rooms already earmarked for development across the industry.
The latest set of financial results are very impressive. We believe this company could be very successful over the long term and view it as one of the most attractive small cap stocks on the UK market. Buy at 92p.
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