Millennium & Copthorne down on Eurozone slow-down

Millenium & Copthorne Hotels, which owns and manages over 100 hotels globally has seen a sharp drop in its shareprice this morning following a warning over future revenues.

The 5% fall seems harsh on the West Sussex firm considering, on virtually every metric, it has had a strong third quarter.

The key number for hotel chains is "RevPAR" or "revenue per available room". Allowing for currency effects M&C's RevPAR rose 7.8% compared to the third quarter of 2010.

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On a like-for-like basis headline profit increased 19.9% to £42.1m on revenues of £198.2m (excluding a £44.2m land sale in Malaysia).

So why the big drop? The problem for Millenium and Copthorne is the Euro debt crisis which is having a chilling effect on business in Europe. In his statement the company's chairman Kwek Leng Beng acknowledges "we are noticing more caution amongst business customers, reflecting anxiety about events affecting the Eurozone."

Just yesterday the new head of the European Central Bank, Mario Draghi, intimated a Eurozone recession was a real possibility.

By their very nature hotel chains, especially ones like M&C targetting "gateway" cities feel the full force of a downturn as people simply stop travelling.

So investors are playing it safe and selling the stock. Nevertheless at least one broker, Evolution Securities, maintains M&C as a buy commenting:

"M&C reported a good Q3 just ahead of our forecasts, but cautioned on the outlook. In a toughening scenario, a virtually debt-free balance sheet is a good place to be with good freehold assets in Singapore, London and New York. The stock is down 28% since its March high-point but has ticked up in the last month."

BS