Leumi Partners raises Fattal’s target price to NIS 398, an upside of about 19% over the market price

Maayan Beck-Merom, a senior analyst at Leumi Partners, updates the forecast based on a scenario of progress in obtaining a vaccine.

Fattal is ending the most complex year in its history, with the corona crisis directly hitting the core of activity and at its peak in April, most of the company’s hotels closed. The crisis began with uncertainty over Fattal’s ability to raise additional resources and cut expenses to meet its debt repayments alongside the loss from operations, and Fattal has proven capable of managing the situation well with the capital market and its bondholders and raising additional sources including state-guaranteed guarantees. And cash flow from hotel sales.

We are updating our forecast in light of the progress made in approving the corona virus vaccine, and expect that by the middle of 2021 a significant portion of the population will be vaccinated. We assume that in 2021 the volume of revenues will increase and the company will present an operational balance and not show profitability. This is a forecast that is at the lower end of the forecast range presented by the company for this year. In subsequent years we assume a gradual improvement in profitability until returning to the pre-crisis representative profitability levels, in 2024. We do not attribute value to future hotels that the company has already entered into agreements to purchase / rent in light of the need to maintain financial strength in the coming years.

Recall that the upcoming reports in the fourth quarter of this year and the first quarter of next year are still expected to be not simple and show losses in light of existing morbidity levels, however in our opinion alongside the vaccine there is an upside in the stock. We update the share price to NIS 398 per share and leave the recommendation for an excess return.

Updating our forecast based on a vaccination scenario: According to our baseline scenario for continued morbidity levels until the crisis, we assume that in 2021 the company will show an increase in vaccine revenue due to a significant share of the population starting in the second half of 2021 and reducing movement and congestion restrictions. We estimate that only in 2024 is the company expected to return to the volume of revenue it presented in 2019 before the crisis.

We estimate that the company will end 2021 in balance and will not present positive EBITDA due to the losses expected to be recorded in the first half of the year due to significant traffic restrictions that we assume relief only after reaching a significant share of the vaccinated population. This is an assumption that is on the lower end of the company’s forecast for this year. We mention that the company expects EBITDAR of NIS 800-1,250 million in 2021, and estimates rental expenses of NIS 800 million (including concessions and deferrals of part of the NIS) from which the expected EBITDA range of NIS 0-450 million in 2021 is derived.

We assume that the company will again present profitability volumes similar to 2019 only in 2024 while only in the representative year we assume an increase in profitability as the company expected to achieve before the crisis.

The stabilization and fundraising program is well managed: in the last months since the outbreak of the epidemic, the company has functioned well with the capital market and other factors and has proven that it is able to do what it takes to raise cash and cut expenses to cope with the significant cash flow. The main steps taken included: reaching an agreement with bondholders in exchange for a temporary waiver of covenants, issuing convertible bonds (amounting to NIS 300 million), private allotment (NIS 50 million), issuing rights (NIS 100 million), Issuance of bonds (NIS 250 million), receipt of state-guaranteed loans amounting to NIS 400 million from Germany and Israel, suspension / waiver of rent payments (NIS 190 million) and sale of a hotel in Europe (NIS 70 million). The company now estimates These measures and other measures that will be taken will increase the amount of resources in the amount of NIS 1.5 billion and allow it to meet all its obligations in the coming year at least until the return to a routine activity. Fattal’s current cash balance is about NIS 1 billion, with debt repayments in the coming year About 700,000 NIS.

Results of operations in the first nine months of the year: In the third quarter of the year, the company gradually increased the number of hotels open according to restrictions in various countries, so that as of the end of November 132 of the group’s 185 hotels in Israel and Europe are open, but occupancy rates are low.

This is a quarter in which in most countries the level of morbidity recovered after the first wave and before the second wave and therefore there was an improvement in the level of revenue, the first nine months of the year amounted to NIS 1,669 million compared to NIS 4,083 million in the same period last year. ) NIS million excluding IFRS 16 (including comprehensive consolidation) compared to EBITDA of NIS 868m in 2019. The net loss in the first nine months of 2020 was NIS (754) million compared to a net profit of NIS 192 million in the corresponding period last year. The second quarter was the most difficult in terms of cash flow when in the third quarter the hotels started to open gradually and therefore the loss decreased compared to the previous quarter.


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