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- 1. Mia Tam | Michelle | Shantelle | Kishen | Moon Hilton FNCE101 G14 Group 6 MARRIOTT VS
- 4. Hilton Overview 1919 founded 1943 first coast-to-coast hotel group in the U.S 1946 listed on NYSE one of the largest hospitality companies in the world “To fill the earth with the light and warmth of hospitality.” U.S. & Canada 74.9% U.S. 83.4% Revenue By region Revenue By segment Franchise 61.3% Management 27% Ownership 11.7% Hq: McLean,VA
- 5. Marriott Overview 1927 founded 1929 incorporated in as Hot Shoppers, Inc. 1957 Shift to hotel business 2016 acquire Starwood Hotels “to be the World's Favorite Travel Company.” Franchise 51.2% Management 23.5% Owned & Other 25.2% U.S. & Canada 74.9% REVenue by region HQ: Bethesda, MD REVenue by segment
- 7. 4 Major players in Hospitality industry (2020) Market SHare
- 8. Life cycle As the effects of Airbnb began to settle, the hospitality industry was in the maturity stage COVID-19 caused a drastic fall in market growth rates In 2021, there is a growth potential in the industry to fill up the gap left by the pandemic Life cycle: Re-entered growth stage In 2008, Airbnb caused a major disruption in the hospitality industry allowing smaller hotels to compete on price and services offered.
- 9. COVID-19 and the Hospitality industry Renting out as quarantine centres Digitization Global market size fell by 58% Bankruptcies and market exits Fewer employees More spacious and open common areas
- 11. Macroeconomics analysis - Overview 1. Increased mobility 2. Change in consumerdemands 3. online travel agencies & hotel booking platforms
- 12. ● More than 5,200 hotels worldwide ● Annual growth rate of 8.3% ● Capture greater market share Franchising Hilton hotels
- 13. ● Integrating technology into its services ● “Digital hospitality” Service differentiation Hilton hotels
- 14. Multiple revenue streams: ● Franchised hotels ○ Management fee revenue ○ Incentive management ○ License fee ● Other revenue ○ Third-party licensing fees ○ Land rental income ○ Branding fees Franchising marriott hotels
- 15. ● Marriott Rewards ● Ritz-Carlton Rewards ● Starwood Preferred Guest (SPG) Loyalty programme Marriott hotels
- 17. financial analysis Hilton (HLT) Marriott (MAR) D/E ratio -7.9 26.38 TOTAL EQUITY -$1.49 BILLION $430 MILLION lONG tERM DEBT $10.3 BILLION $9.1 BILLION Dividend Payout rAtio -5.8% 48% DIVIdends paid $42 MILLION $156 MILLION
- 19. fundamental analysis - Brief Overview Significant drop due to the pandemic Overall growing trend
- 20. fundamental analysis - Comparative analysis ● Marriott was relatively the most efficient at managing their operations compared to the other giants during the pandemic period. ● Negative profit margin → High exposure to financial risks ● Struggle to lower operating cost because of the high fixed expenses, etc. administrative expenses and the renting expenses. ● InterContinental managed to drive profitability from its assets even when the other giants were struggling to make earnings from their existing resources. ● Hilton and InterContinental had negative equity. Their total liabilities, which mostly increased because of their long-term debt and short-term borrowings, is larger than their total assets.
- 22. Stock valuation Hilton Marriott Market Return based on Compound annual growth rate from 1920 to 2020 10.46% Perpetual growthrate 2.5% Risk-free rate based on the US treasury yield (10 years) 1.62% Adjusted beta 1.17 2019 cashflow *Hilton's2020 free cash flow differs substantiallyfrom theirpre-pandemic free cash flow in 2019 and 2018 - less representative of post-pandemic future $1,179,000 Market Return based on Compound annual growthrate from 1920 to 2020 10.46% Perpetual growthrate 2.5% Risk-free rate based on the US treasury yield (10 years) 1.62% Adjusted beta 1.23 2020 cashflow $1,504,000
- 23. Free cash flow model Hilton Marriott Year 2019 2020 2021 2022 2023 2024 FCF $1,179,000 $1,304,917.20 $1,444,282.36 $1,598,531.71 $1,769,254.90 $1,958,211.32 Terminal Value $26,090,327.95 Total $1,304,917.20 $1,444,282.36 $1,598,531.71 $1,769,254.90 $28,048,539.27 Intrinsic Value $53.88 Market Value $141.66 Year 2020 2021 2022 2023 2024 2025 FCF $1,504,000 $1,807,206.40 $2,171,539.21 $2,609,321.52 $3,135,360.73 $3,767,449.46 Terminal Value $46,475,287.83 Total $1,807,206.40 $2,171,539.21 $2,609,321.52 $3,135,360.73 $50,242,737.29 Intrinsic Value $85.42 Market Value $154.75 Overvalued (-61.97%) Overvalued (-44.80%)
- 25. Technical analysis - short-term (6 months) Hilton Marriott Trend: Upwards Resistance: 145.09, Support: 118.82 Price is above 10-day MA 10-day MA crossed above 50-day MA Trend: Upwards Resistance: 158.78, Support: 131.80 Price is above 10-day MA 10-day MA almost crossing above 50-day MA
- 26. Technical analysis - medium-term (1 year) Hilton Marriott Trend: Upwards Resistance: 145, Support: 117.46 Price above 50-day MA Trend: Upwards Resistance: 159.55, Support: 131.56 Price above 50-day MA
- 27. Technical analysis - long-term (3 years) Hilton Marriott Trend: Upwards Resistance: 132.08, Support: 69.97 Price above 200-day MA 10-day MA crosses above 50-day MA Trend: Upwards Resistance: 158.45, Support: 81.61 Price above 200-day MA 10-day and 50-day MA crossed above 200-day MA
- 28. Comparison between peers, industry and overall market Competitors: Hyatt Hotels Corporation (H), InterContinental Hotels Group PLC (IHG) and Wyndham Hotels & Resorts, Inc. (WH) Industry: Host Hotels & Resorts (HST)
- 29. Recommendations Hilton Industry Avg./ Med Net Income Margin -44.70% -35.22% Gross Profit Margin 61.30% 48.16% Current Ratio 1.73x 1.72x ROA 0.18% 0.66% EPS -2.58 -1.43 ● High long term debt → weak financial position ● Long running accumulated deficit (sine 2016) Enterprise Multiple Industry Med 36.64 26.69 Overvalued Enterprise Multiple Stock Valuation Intrinsic Value Market Value $53.88 $141.66 SELL -61.97%
- 30. Recommendations Marriott Industry Avg./ Med Net Income Margin -12.60% -35.22% Gross Profit Margin 68.10% 48.16% Current Ratio 0.49x 1.72x ROA 1.20% 0.66% EPS -0.82 -1.43 Enterprise Multiple Industry Med 26.69 26.69 Enterprise Multiple Stock Valuation Standard Intrinsic Value Market Value $85.42 $154.75 -44.8% HOLD ● Stronger financial position ○ Higher probability to achieve stronger growth rates & solidify industry dominance ○ Serve as evidence of how Marriott survived from downturn caused by pandemic
- 31. CREDITS: This presentation template was created by Slidesgo, including icons by Flaticon, and infographics & images by Freepik THANK YOU!
- 32. CREDITS: This presentation template was created by Slidesgo, including icons by Flaticon, and infographics & images by Freepik btrevefvefveverveer ervefverererervervr vreververgfngfnggf gf Btrevefvefvevervee rervefverererfgfrver vrvreverfb
Editor's Notes
- Hilton was founded in 1919 when Conrad Hilton bought his first hotel in Texas; since then he began to expand its hotel business and became the first coast-to-coast hotel group in the U.S in 1943. In 1946, Since then, Hilton has grown into one of the largest hospitality companies in the world with more than one million rooms globally. Hilton operates through three segments: (1)Management (2)Franchise and (3)Ownership with 83.4% of revenue coming from the US
- Marriott was founded in 1927 by J. Willard Marriott and his wife. It was incorporated in 1929 as Hot Shoppers, Inc. Following its acquisition of Starwood Hotels in 2016, Marriott has become one of the largest global hotel companies. Marriott has residential and timeshare properties in 133 countries and territories under 30 brand names. Revenue is earned from the Ownership, Franchise and Management segment with 74.9% coming from Us and Canada.
- As of 2020, the global hospitality industry was led by 4 major players. Ranked by brand value, the top 4 most valuable companies in the hospitality industry include Hilton, Marriott, Hyatt, and Holiday Inn. Despite Hilton having greater brand value, Marriott led the industry in terms of sales revenue at 10.6 billion US dollars in 2020 with Hilton trailing behind them at 4.3 billion dollars
- Moving on to the life cycle, A major change in the industry occurred in 2008 with the introduction of Airbnb. This provided smaller scale hotels a platform to compete with larger and more luxurious hotels through the variety of services and lower prices offered, which in turn increased competition within the market. Based on our analysis we determine that the hospitality industry was in the maturity stage as the initial effects of Airbnbs introduction settled down. However, as COVID-19 hit the market, we saw a drastic fall in growth rates and loss of profits for most hotels In late 2021 however, as mass COVID vaccinations get rolled out and country borders begin to re-open we see growth potential for the hospitality industry. [Slide Animation] This is why be believe the hospitality industry re-entered the growth phase in 2021 and we expect to see this growth in 2022 as market growth rates are forecasted to increase by 55.7% between 2020 and 2022
- We will now be examining the current and future effects of the COVID-19 pandemic on the hospitality industry. As briefly mentioned in the previous slide, the pandemic caused global market size to fall. As people were worried for their safety, the last thing on everyone’s mind was to go to a luxury hotel for a holiday. Some hotels protected themselves from this fall in vacancies by renting out their rooms to the government for use as quarantine centres. As a whole, COVID caused many hotel and market exits in the hospitality industry. [Slide Animation] What we want to focus on however, are the trends that emerged from the pandemic. Digitalization brought mobile door keys, online booking, automated check-in services and automated room service to the industry. Hotels also aim to reduce employee footfall on hotel premises to reduce the risk of spread of COVID Finally, hotels are also adopting architectural practices conducive for social distancing such as wide open spaces to minimise congestion These changes will permanently affect the hospitality industry as apart from how they are tailored to fit the post-COVID trend of minimising un-essential social interactions, digitalization also results in hospitality services being more efficient and seamless
- Thank you, Kishen. I will now move on to give an overview of the macroeconomic analysis of the hospitality industry. The macroeconomic conditions for the hospitality industry have been favourable for the past two decades. Some significant changes that shaped the economic trends were 1. Increased mobility that led to a rise in overseas travelling and therefore a rise in hotel bookings, 2. Change on consumer behaviour that places greater emphasis on “recreation” and “food”, as well as rise in demand for staycations, and 3. Introduction of online travel agencies and hotel booking platforms that increased accessibility and exposure to potential customers
- The two hotels have adopted various strategies to cope with the current economic situation. Hilton Hotels has been keeping itself competitive through franchising more than 5,200 hotels with over 856,000 rooms all over the world. This has led to an annual sales growth rate of 8.3% over the recent 5 years, its value estimated at $27.8 billion. Franchising also allows them to read the trends and focus on the sectors that are in higher demand in the city, therefore able to capture greater market share.
- another strategy Hilton Hotels has adopted is extensive service differentiation. By integrating technology into its services, Hilton achieves ‘digital hospitality’ through various services such as “booking channels, mobile services, loyalty, and data driven-personalisation, guest experience and privacy”
- On the other hand, the franchise business model has created 2 revenue streams for Marriott Hotels; income from its franchised hotels as well as other revenues which include land rental and branding fees for third-party residential sales.
- Marriott has also tackled service differentiation from a different angle by expanding its loyalty program through a merger of its 3 distinct programs into a single experience, therefore appealing to the consumers who enjoy the luxury of premium hotels.
- Both Hilton and Marriott run a debit centric capital structure. The long term debt of $10.3B from Hilton was incurred due to the issuing of senior notes in 2020 to extend the maturities and reduce interest rates of outstanding debt. Marriott also followed with 9.1B in debt. Hilton’s debt-to-equity ratio was -7.9 compared to Marriott 26.38. The value was distorted due to the loss of $1.49B in total equity. Meanwhile, The low equity balance of Marriott is mainly caused by the purchase of treasury stock in 2020. While Marriott managed to paid $156M for dividend, Hilton was far behind with a humble figure of $42M. The negative dividend payout ratio of Hilton was caused by the drastic fall in Net Income. This fall has forced Hilton to cut down on dividends to focus on their management during the pandemic. .
- Overall, there was a growing trend in revenue and net income for both companies before the pandemic kicked in. Hilton’s annual revenue reached a high of $3.76B in 2019 before it plunged by nearly 65% and ended the year 2020 with only $1.6B. Hence, it is no surprise that their net income suffered a significant loss of $715M in 2020 compared to around $881M in the previous year. Marriott also confronted the same situation, not to mention worse, when their revenue declined by half in 2020 compared to the previous years. Compared with Hilton’s annual revenue in 2020, Marriott was far behind with a more humble number of $2.1B. Their net income experienced an even greater loss of $267M when compared to that of their competitor. (next)
- During the pandemic period, Marriott was relatively the most efficient in generating profit for every dollar of cost involved in their operation as we see the high number in Gross Profit margin as compared to other companies Negative profit margin means they have high exposure to financial risks One of the reasons that prevents them from lowering its operating cost is the high fixed expenses they had such as administrative expenses and the renting expenses. These costs had a significant effect on their profit and margin especially when there was extremely low demand. InterContinental managed to drive profitability from its assets even when the other giants were struggling to make earnings from their existing resources. Hilton and InterContinental had negative equity. Their total liabilities, which mostly increased because of their long-term debt and short-term borrowings, is larger than their total assets. Now i will pass my time to Shantell to share about stock valuation (next)
- Thank you Mia, I am Shantelle and I will be taking you through our stock valuation and technical analysis. For our stock valuation,
- Both Hilton and Marriott have suspended their dividend payments since the first quarter of 2020. Since the dividends are not regular as of now, we used the free cash flow model instead of the dividend discount model. For both companies, the market return was based on the compound annual growth rate from 1920 to 2020. For the perpetual growth rate, we used 2.5% and the risk-free rate was based on the 10 years US treasury yield. \We calculated the adjusted beta of both companies with the 10 years of weekly close against the S&P 500 index, using the linear regression and slope method. We used Hilton’s 2019 cash flow as their 2020 free cash flow differed substantially from their pre-pandemic free cash flow For Marriott, we used their 2020 cash flow.
- Based on the free cash flow model, We found that Hilton had an intrinsic value of $53.88 and a market value of $141.66 which was overvalued by -61.97% As for marriott, they had an intrinsic value of $85.42 and a market value of $154.75 which was overvalued by -44.8%
- Moving on to our technical analysis, we looked at the resistance, support, moving averages and crossovers for our analysis
- in the short-term, of the past 6 months, both hilton and Marriott have an overall upwards trend
- in the medium-term, of the past year, both hilton and Marriott have an overall upwards trend which seems to be approaching an inevitable downward trend when we compare the current price to the resistance
- in the long-term, of the past 3 years, both hilton and Marriott have an overall upwards trend. For Hilton, we anticipate that their stock price will continue on an upward trend but Marriott will face an inevitable downward trend
- The overall trend for Hilton, Marriott, Hyatt, InterContinental and Wyndham from 2017 to 2020 was upwards until 2020, when the hospitality industry hit hardest in early 2020 due to the pandemic Hilton, Marriott and Wyndham have been performing the best since the fall in 2020. Hilton is the company with the most potential, given the significant rise in price over the past 10 months; its stock price even exceeds both the industry average and the market average. Thank you and I will now pass the time to Michelle
- Thank you, Shantelle. Now, I’ll talk abt our group’s recommendations for Hilton and Marriott. As shown in the table, Hilton has a higher gross profit margin and current ratio compared to the industry average, which shows its ability to retain fairly high profits from its sales and cover its short term debt with current assets, respectively. However, Hilton has a lower net income margin, ROA and EPS than the industry average, which shows its worse off operating performance, inefficiency to utilize assets to earn income, and a larger loss allocated to a share on average. These factors put Hilton in a more dangerous financial position despite its better than average gross profit margin and current ratio. In addition, Hilton’s high long term debt figures coupled with their negative equity confirms their weak financial position. As mentioned in the financial analysis, the long running accumulated deficit is a clear indicator of financial instability and given its size, we do not see Hilton being able to turn this into positive retained earnings anytime in the near future. Based on the enterprise multiple and stock valuation, we can see that Hilton is highly overvalued with 61.97% in the market, which indicates a future decline in their stock price. Despite the post-COVID industry growth potential as previously mentioned, we believe that Hilton’s weak financial position and instability does not give concrete evidence that they will be able to utilize this industry growth as they will be facing this with a weak financial foundation. Thus we doubt this company’s ability to maintain their dominant market position in the long run. Therefore, our team would recommend a SELL for Hilton. We do see a potential to improve Hilton’s financial situation using its franchise business model as the franchise-based business has proven to be highly profitable. Franchising allows Hilton to develop new properties without investing huge sums of money by having the developers pay for the upfront costs, and Hilton enjoys franchise and management fees from the hotels. With an expanded franchise model, Hilton will see its profitability rise without incurring much incremental costs. However, to make a stock purchase/sell decision we are giving priority to Hilton’s current financial standpoint rather than future potential.
- Marriott, on the other hand, except for its lower than average current ratio, has better performance of net income margin, gross profit margin, ROA and EPS compared to industry average. These better off figures indicate that despite facing loss in 2020, Marriott is still performing well and have a better potential to recover from its loss in the hospitality industry. In terms of enterprise multiple, Marriott’s current value shows that its stock price is considered standard in the industry, being the median among its competitors we referred to. For stock valuation, although we saw that Marriott is also overvalued in the market, which indicates a future decline in their stock price, the overvalued percentage of 44.8% is relatively small as compared to that of Hilton’s. Also, the stronger financial health gives them a higher probability to achieve stronger growth rates and solidify their industry dominance. The positive financial indicators provide enough evidence of how Mariott survived the downturn caused by the pandemic and therefore we believe this company will be among the leaders of the post-COVID growth the hospitality industry will face. From the above, our team would recommend a HOLD for Marriott. Also, Marriott will be able to utilize its franchising model better than Hilton as they are currently in a stronger financial position as shown in the fundamental analysis.
- This is the end of our presentation. Thank you for your attention and we’ll now move on to Qna.