Sagicor X Fund resolute as Playa's share price plunges

Sunday, November 18, 2018

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Playa Hotels & Resorts, of which Sagicor Jamaica holds a significant stake, continues to see its share price drop.

Playa owns, operates, develops and manages all-inclusive resorts in various vacation destinations in Mexico and the Caribbean.

Earlier this year, Sagicor completed a combination deal which saw Sagicor hand over to Playa its hotel assets in exchange for US$100 million in cash and a 15 per cent stake in Playa's shareholdings. The entire deal was valued at US$310 million.

Since the start of the year, Playa's share price has fallen by 16 per cent, coming from a 52-week high of US$11.68 to closing on Friday at just below US$8.00.

On June 30 this year, Playa's share price stood at US$10.79 and by September 30 it dropped to US$9.63

Sagicor's X Fund, which is popular with a number of Jamaican pension funds, has Playa as a major earning asset, contributing J$15.8 billion and accounting for 49 per cent of its total assets and 21 per cent of EBITDA.

Sagicor Jamaica Group CEO Christopher Zacca is not unduly worried at this point in time and believes the fall in Playa's share price should not fundamentally undermine Sagicor's X Fund's cash flow. Some observers consider the drop in share price a short-term blip.

“The Sagicor Group is a significant shareholder in the X Fund in its own right (29 per cent). We are very confident that the X Fund has a bright future,” Zacca said. “The potential upside of its main earning assets (The Double Tree Orlando and its investment in Playa) will be very significant over the next 12 months.”

Playa itself attributes its falling share price to “construction disruption, short-term dislocations caused by a move toward lower cost direct business and pricing pressures in Mexico”.

It also pointed out that low volume and liquidity lead to outsized changes in share price.

Playa is currently constructing two five-star Hyatt hotels on one location in the Dominican Republic. This will consist of 750 rooms.

It is also converting existing properties into Hilton hotels in Mexico.

Headquartered in Fairfax, United States, Playa expects to invest over US$200 million to build 760 additional rooms in Jamaica over the next three years.

All this construction is expected to boost EBITDA next year with some analysts placing Playa's share price in the US$14 to US$15 range next year.

Playa resorts has a market cap of US$1.10 billion and a PE ratio of 21.32. Earlier this month, issued earnings results revealed Earnings Per Share (EPS) of US$0.04 for the quarter under review, as well as a net margin of 3.64 per cent and a Return on Equity (ROE) of 6.98 per cent. Revenues for this period came in at $142.81 million.

Commenting on the fall in Playa's share price, Sagicor said: “Playa's share price has declined over the past three months on the back of weaker equity market outlook and more cautious sentiment toward the lodging industry.”

Last week Zacks Investments downgraded shares of Playa from a “Hold” rating to a “Sell” rating in its issued report.

Some hedge funds have modified their holdings in Playa. Around 70 per cent of the stock is owned by institutional investors and hedge funds.

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