Ikeja Hotel Plc Q3 2020 Results: Losses Rise as Coronavirus Effects Linger

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Monday, November 9, 2020 / 5:44 PM / by Proshare Research /Header Image Credit: Ikeja Hotel


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Ikeja Hotel Plc has had a sordid time as it posted a second consecutive loss in 2020. Its revenue fell by -60.49% while it recorded a loss before tax of N1.39bn in Q3 2020. The loss incurred could be attributed to a decline in revenue from falling room occupancy rates -61.95%, a drop in food & beverages revenue -63.26%, and departments -67.42%. In contrast, revenue from other minor operating departments grew by +50.11% year-on-year (Y-o-Y). Nevertheless, growth in revenue from these auxiliary operations could not offset the decline in revenues from its mainline businesses.

Highlights

  • Revenue declined by -60.49% Y-o-Y to N3.6bn in Q3 2020.
  • Loss before tax of N1.39bn incurred in Q3 2020.
  • Shareholder funds declined by -5.02% to N17.89bn in Q3 2020.
  • Net debt to equity ratio of 13.3% in Q3 2020.


Losses Skid into A Ditch

Ikeja Hotel Plc PBT

Ikeja Hotel plc recorded a significant decline in its loss before tax in Q3 2020. Its loss before tax dipped by -330% in Q3 2020. The hotel's loss before tax swerved to N1.39bn in Q3 2020 from a loss of N777.06m in H1 2020 and a profit before tax of N603.88m in Q3 2019. The slide in profit was proof-perfect that the hotelier was bumping into a major financial storm (see Chart 1 below).


Chart 1: Ikeja Hotel Plc PBT (N'm)

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Source: Ikeja Hotel Plc, Proshare Research

 

Ikeja Hotel Plc Revenue

Ikeja Hotel Plc saw revenue tumble by -60.49% in Q3 2020. Its revenue tripped from N9.12bn in Q3 2019 to N3.6bn in Q3 2020. The decline was the result of falling incomes from main operating revenue lines, room occupancy fell and revenues from beverages, a major top line item, ran into a wall. The decline in income from major slices of the hotel's business was the result of a partial lockdown of the economy in Q2 2020 at the height of the spread of the coronavirus which affected travels, disrupted supply chains, and reduced patronage of the hospitality sector (see Chart 2).


Chart 2: Ikeja Hotel Plc Revenue (N'm)

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Source: Ikeja Hotel Plc, Proshare Research


Slicing Open the Revenue Underbelly

A breakdown of the hotel's revenue shows that its major source of revenue was from room occupancy, this came to N2.1bn while the lowest revenue item was from miscellaneous sources which amounted to N164.08m (see Chart 3 below).

 

Chart 3: Ikeja Hotel Plc Breakdown of Revenue (N'm)


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Source: Ikeja Hotel Plc, Proshare Research

The Little Big Issue of Rooms

The hotel's revenue derived from room occupancy slumped by -61.95% in Q3 2020. It declined from N5.51bn in Q3 2019 to N2.09bn in Q3 2020 (see Chart 4 below).


Chart 4: Ikeja Hotel Plc Room Revenue (N'm)

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Source: Ikeja Hotel Plc, Proshare Research

Foods and Beverages: An Ode to the Stomach

Food & Beverages revenue declined by -63.26% in Q3 2020. The revenue item slipped from N2.93bn in Q3 2019 to N1.08bn in Q3 2020 (see Chart 5 below).


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Chart 5: Ikeja Hotel Plc Foods & Beverages (N'm)

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Source: Ikeja Hotel Plc, Proshare Research


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Minor Operating Income- Small but Growing

The Hotelier's revenue from its minor operating department grew by +50.11% in Q3 2020. The revenue increased from N177.59m in Q3 2019 to N266.58m in Q3 2020 (see Chart 6 below).


Chart 6: Ikeja Hotel Minor Operating Department N'm

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Source: Ikeja Hotel Plc, Proshare Research

 

Miscellaneous Minuses

Against the background of a generally tough business environment Ikeja Hotel Plc recorded a decline in its miscellaneous revenue by -67.42%. Miscellaneous revenue plunged from N503.62m in Q3 2019 to N164.08m in Q3 2020 (see Chart 7 below).


Chart 7: Ikeja Hotel Plc Miscellaneous (N'm)

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Source: Ikeja Hotel Plc, Proshare Research

 

A Glimpse at Key Ratios

Current Ratio: A Tough Time to Search for Liquidity

The hospitality giver's current ratio declined from 0.84 in Q3 2019 to 0.77 in Q3 2020. Its current ratio of 0.77 indicates that for every N1 current liability, Ikeja hotel has N0.77 of current assets available to pay for it (see Chart 8 below).


Chart 8: Ikeja Hotel Plc Current Ratio

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Source: Ikeja Hotel Plc, Proshare Research


Acid Test Ratio: A Taste of Caustic Soda

With inventories rising on the back of lower patronage the hotels inventories have been rising resulting in a biting acid test ratio (a stiffer measure of liquidity) which declined from 0.78 in Q3 2019 to 0.73 in Q3 2020. The ratio implies that the hotel has 73kobo of liquid assets for every naira of current liabilities after adjusting for inventories (see Chart 9 below).


Chart 9: Ikeja Hotel Plc Acid Test Ratio

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Source: Ikeja Hotel Plc, Proshare Research

 

Debt-to-Equity: A Bit More Credit Please!

It recorded an increase in net debt to equity ratio from 8.1% in Q3 2019 to 13.3% in Q3 2020. Its low net debt to equity ratio implies that there is still room for Ikeja Hotels Plc to accommodate more debt (see Chart 10 below).

Chart 10: Ikeja Hotel Plc Net Debt to Equity Ratio

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Source: Ikeja Hotel Plc, Proshare Research

 

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A Knock off Shareholders' Funds

Equity: A Slowly Shrinking Violet

As the hospitality company fought to shrug off the impact of a COVID-19-inspired decline in shareholder funds in Q3 202o, the company's loss position took a small bite out of shareholder's equity. Shareholders' funds dropped by -5.02% in Q3 2020 as investors saw corporate value gradually vaporize. Owners of the hotel saw corporate equity shrink from N18.84bn in Q3 2019 to N17.89bn in Q3 2020 (see Chart 11 below).


Chart 11: Ikeja Hotel Plc Equity (N'm)

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Source: Ikeja Hotel Plc, Proshare Research


Matters Arising

Ikeja Hotel Plc recently issued a statement to its shareholders on the unaudited group accounts for the third quarter ended September 30, 2020. It stated that the loss after tax of N1.4bn recorded by the group in Q3 was due to the continued effects of the COVID-19 pandemic on the hospitality sector which is likely to affect the declaration of dividend for the year ended December 31, 2020. It noted that Ikeja Hotel Plc (the Company) is responding to these challenges to return the business to profitability. 


Furthermore, it reported that it received a letter dated October 15, 2020, from the Lagos State Government, purportedly revoking its right of occupancy on its land situated at Opebi Gorge, Ikeja, Lagos. It revealed that it has taken legal action to contest the revocation. However, the revocation had the potential to impair the assets of the Group to the tune of N4.63bn if the government succeeds.
 

 

Fears of a second COVID-19-related lockdown and a legal battle with the Lagos State Government over the landed property at Opebi Gorge would make the pathway of a rebound in profit the hotel a difficult proposition.



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