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19 September 2016

Accor (AC FP) EQUITIES

HOTELS RESTAURANTS &
LEISURE

Hold: A man with a plan France

 An improved business structure and credible strategy make INITIATE AT HOLD

Accor a more viable investment
TARGET PRICE (EUR)
 But the trading backdrop is tough and execution risk remains
38.00
 Initiate with Hold and EUR38 TP: valuation not yet compelling
SHARE PRICE (EUR) UPSIDE/DOWNSIDE

Aggressive restructuring leaves a cleaner, more comparable company 35.40 +7.4%

(as of 15 Sep 2016)
Sebastien Bazin, CEO since 2013, has done an impressive job of creating two well-
defined businesses: HotelInvest and HotelServices. He has made headway in MARKET DATA
restructuring the asset-heavy business (HotelInvest) and is now working on Market cap (EURm) 10,077 Free float 97%
Market cap (USDm) 11,330 BBG AC FP
transforming it into a subsidiary to eventually sell the majority holding. The asset-light 3m ADTV (USDm) 76 RIC ACCP.PA
business (HotelServices) has been invested in with stronger loyalty and digital
FINANCIALS AND RATIOS (EUR)
infrastructure. Accor is now a more efficient and investor-friendly business. Year to 12/2015a 12/2016e 12/2017e 12/2018e
HSBC EPS 1.57 1.66 1.84 2.16
But the backdrop remains unhelpful HSBC EPS (prev) - - - -
Change (%) - - - -
Despite the restructuring, Accor remains highly geared to French RevPAR (third of
Consensus EPS 1.78 1.64 1.92 2.19
the business), which was down 2.2% in H1. Difficult trading conditions in France and PE (x) 22.5 21.4 19.3 16.4
Dividend yield (%) 2.8 2.7 3.1 3.3
Brazil as well as digital and acquisition costs leave earnings at risk, in our view. We EV/EBITDA (x) 10.0 11.6 9.7 8.4
fear this in turn could put some pressure on the valuations that investors are willing to ROE (%) 10.0 9.4 10.3 11.8
pay for an investment in the future HotelInvest subsidiary (previously valued at
52-WEEK PRICE (EUR)
EUR6.9bn by external valuers).
49.00
We like the long-term vision but it comes with execution risk
38.00
Given the importance of upscale brands, innovative technology and rental
27.00
accommodation, we think Accor is making bold but well-placed strategic moves. In Sep 15 Mar 16 Sep 16
five years’ time, the non-hotel part of Accor could be worth up to a third of group Target price: 38.00
High: 46. 05 Low: 29.96 Current : 35.40
revenues in our view. That said, with an innovative forward-thinking strategy, there Source: Thomson Reuters IBES, HSBC estimates
comes inevitable risk. Not all acquisitions may turn out to be successful and
timeframes for financial reward can be unpredictable. Most importantly for investors, Lena Thakkar*
the return on investment may not be as immediate or clear as they’d like on every Analyst
HSBC Bank plc
individual investment and Accor is not shy of buying at higher multiples (e.g. FRHI lena.thakkar@hsbcib.com
acquisition). Investors may therefore worry that any excess cash from the HotelInvest +44 20 7991 3448

spin-off may be spent on acquisitions with a lengthy or uncertain pay-back period. Joe Thomas*
Analyst
HSBC Bank plc
A credible business, not especially cheap joe.thomas@hsbcib.com
Accor has guided to FY16 EBIT of EUR670-720m and consensus is currently at +44 20 7992 3618
cEUR700m. We are at the lower end of guidance, at EUR670m. On our numbers, the Shuchi Jain*
Associate, Bangalore
stock trades on c20x PE. We assume the company can achieve a EUR7bn valuation for
the HotelInvest portfolio (including the seven new assets from FRHI) and put
* Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is
HotelServices on an asset-light peer multiple to derive a TP of EUR38. not registered/ qualified pursuant to FINRA regulations

Disclosures & Disclaimer Issuer of report: HSBC Bank plc

This report must be read with the disclosures and the analyst certifications in
View HSBC Global Research at:
the Disclosure appendix, and with the Disclaimer, which forms part of it. https://www.research.hsbc.com
EQUITIES  HOTELS RESTAURANTS & LEISURE
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Financials & valuation: Accor Hold

Financial statements Valuation data

Year to 12/2015a 12/2016e 12/2017e 12/2018e Year to 12/2015a 12/2016e 12/2017e 12/2018e
Profit & loss summary (EURm) EV/sales 1.8 2.1 1.9 1.8
Revenue 5,581 5,507 5,835 6,073 EV/EBITDA 10.0 11.6 9.7 8.4
EBITDA 986 977 1,169 1,322 EV/IC 3.4 2.0 2.0 1.9
Depreciation & amortisation -321 -307 -352 -388 PE* 22.5 21.4 19.3 16.4
Operating profit/EBIT 665 670 817 934 PB 2.2 2.0 2.0 1.9
Net interest -71 -70 -70 -70 FCF yield (%) 1.1 0.4 2.2 3.8
PBT 408 587 717 844 Dividend yield (%) 2.8 2.7 3.1 3.3
HSBC PBT 605 610 763 890 * Based on HSBC EPS (diluted)
Taxation -171 -341 -384 -349
Net profit 210 219 307 468
HSBC net profit 371 412 523 614 Issuer information
Cash flow summary (EURm) Share price (EUR) 35.40 Free float 97%
Cash flow from operations 888 668 808 984 Target price (EUR) 38.00 Sector Hotels Restaurants &
Capex -635 -523 -496 -516 Leisure
Cash flow from investment -380 -1,287 -492 -512 Reuters (Equity) ACCP.PA Country France
Dividends -174 -238 -274 -314 Bloomberg (Equity) AC FP Analyst Lena Thakkar
Change in net debt -354 1,465 -42 -158 Market cap (USDm) 11,330 Contact +44 20 7991 3448
FCF equity 109 43 220 386
Balance sheet summary (EURm)
Intangible fixed assets 1,004 1,051 1,016 979 Price relative
Tangible fixed assets 3,024 5,812 5,941 6,056
Current assets 3,990 2,120 2,106 2,277
Cash & others 2,963 1,150 1,192 1,350 52.00 52.00
Total assets 8,953 9,918 9,999 10,248
47.00 47.00
Operating liabilities 2,111 2,145 2,166 2,234
Gross debt 2,855 2,507 2,507 2,507 42.00 42.00
Net debt -195 1,270 1,228 1,070
Shareholders' funds 3,762 5,041 5,101 5,282 37.00 37.00
Invested capital 2,944 5,687 5,706 5,729 32.00 32.00

27.00 27.00
Ratio, growth and per share analysis 2014 2015 2016 2017
Accor Rel to SBF-120
Year to 12/2015a 12/2016e 12/2017e 12/2018e
Y-o-y % change Source: HSBC
Note: Priced at close of 15 Sep 2016
Revenue 2.3 -1.3 5.9 4.1
EBITDA 6.8 -0.9 19.7 13.0
Operating profit 10.5 0.7 22.1 14.2
PBT -2.6 43.8 22.3 17.6
HSBC EPS -5.6 5.4 10.8 17.4
Ratios (%)
Revenue/IC (x) 1.9 1.3 1.0 1.1
ROIC 12.9 6.5 6.7 9.6
ROE 10.0 9.4 10.3 11.8
ROA 2.7 2.6 3.3 4.9
EBITDA margin 17.7 17.7 20.0 21.8
Operating profit margin 11.9 12.2 14.0 15.4
EBITDA/net interest (x) 13.9 14.0 16.7 18.9
Net debt/equity -4.9 24.1 23.1 19.4
Net debt/EBITDA (x) -0.2 1.3 1.0 0.8
CF from operations/net debt 52.6 65.8 91.9
Per share data (EUR)
EPS Rep (diluted) 0.89 0.88 1.08 1.64
HSBC EPS (diluted) 1.57 1.66 1.84 2.16
DPS 1.00 0.96 1.10 1.19
Book value 15.98 17.71 17.92 18.56

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Restructuring leaves a cleaner, more comparable company

Since August 2013, Accor has made major strides in improving its business mix and strategy. First,
the company has been reorganised into two well-defined businesses; HotelInvest and HotelServices.

HotelInvest: Portfolio rationalisation

HotelInvest, which comprises owned & leased hotels, initially started (2013) with a portfolio of
1,400 hotels with c300 in full ownership. The portfolio was largely in Europe (85%) and in the
economy and midscale segments (>95%). Since it was formed, the HotelInvest division has
transformed from a group with 50% net operating income from owned hotels to 65% now,
having restructured a number of leased hotels by acquisition followed by sale & franchise back.
Most recently, 85 hotels in Europe have been sold to Grape Hospitality (for EUR504m) which is
a newly formed hotel platform owned 70% by Eurazeo and 30% by AccorHotels.

As a result, the operating margin of HotelInvest went from 4% in 2013 to 7.9% in 2015 and the
external valuation of the portfolio has risen from EUR5.5bn to EUR6.9bn. In July 2016, Accor
initiated a project to turn HotelInvest into a subsidiary by the end of H1 2017 so that third-party
investors can own the majority of it. This process and the valuation achieved for the portfolio
could be a catalyst for the shares. We expect Accor to hold on to a stake of around 30%.

Contribution from owned hotels to NOI HotelInvest margins since

70% EBITDA margin EBIT margin

16%
60% 65%
61% 14%
50% 56% 12% 12.0% 13.6%
53% 13.0%
50%
40% 10% 10.1%

30% 8%
7.9%
6% 6.1%
20% 6.6%
4% 4.1%
10%
2%
0% 0%
PF 2012 2013 2014 2015 H1 2016 2013 2014 2015 H1 16

Source: Company data, HSBC Source: Company data, HSBC

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HotelInvest Gross asset value & ROI

8 GAV HotelInvest ROI HotelInvest 13%

6.7 6.9
7 In EUR bn 6.3
6 [5.0 - 5.5]
5
4 10.6% 11%
3 9.7% 9.6%
9.5%
2
1
0 8%
Jun 14 Dec 14 Jun 15 Dec 15
Source: : Company data, HSBC
*GAV = Gross asset value

HotelServices: The asset-light future of Accor

Once the HotelInvest sale process is complete, the remaining business within Accor will be
HotelServices, which is a hotel operator and brand franchisor and therefore an asset light and
fee-driven model. This business is more comparable to the likes of IHG, although the hotels will
remain skewed to Europe and budget/midscale. We think this business is vastly improved from
a shareholder perspective with a clearer picture of its future prospects and appropriate
valuation. The growth potential is strong for this business, with 90% of the 160k room pipeline
expected to convert over four years.

HotelServices: Revenue breakdown (H1 16) HotelServices: Fees breakdown (H1 16)

Others Others
13% 14%
Hotel
Inv est
Ex ternal 37%
Management franchised
Sales, & Franchise, 17%
Marketing 50%
& Digital
37% Ex ternal
managed
32%

Source: Company data, HSBC Source: Company data, HSBC

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HotelServices: Revenue and EBIT HotelServices: Net room additions

1,800 Revenue EBITA

In EUR m
1,600 40,000
1,400
1,200
30,000
1,000
800
600
20,000
EBIT CAGR (0.2)%
400
200 10,000
0
FY 13A FY 14A FY 15A FY 16E
0
FY 13A FY 14A FY 15A FY 16E
Source: Company data, HSBC Source: Company data, HSBC

The new business is also better diversified post the acquisition of FRHI (Fairmont, Raffles, and
Swissôtel). The acquisition was for 155 hotels (56,000 rooms), including 40 hotels (13,000
rooms) under development. It was was agreed at a multiple we consider to be high (21x pre
synergies/14x post synergies) with a USD840m cash payment and the issue of 46.7m shares.
However, since December, Accor’s share price has fallen by over 10% making the deal less
expensive (19x pre synergies/13x post synergies). The portfolio is a luxury one and of the 110
trading properties, 42 are in North America, 2 in South America, 26 in Europe, 17 in
Africa/Middle East and 28 in Asia-Pacific. Most of the hotels (108) are under long-term
management contracts with average remaining terms of close to 30 years. Six of the hotels are
leased and one is owned. FRHI’s 2016 revenue is estimated at cUSD550m and EBITDA at
USD140m, including USD20m of JV contribution. Accor is targeting EUR65m in revenue and
cost synergies. This acquisition was a strategic move to become relevant in the luxury segment,
in the US and add prestigious brands and loyalty members to the portfolio.

FRHI growth 2010-2015 (CAGR) FRHI economic EBITDA growth (CAGR)

(remove “growth” from key)

Share of EBITDA from JV

FRHI Economic EBITDA
10% 15% CAGR ex pected
in the medium term

(In USDm)
20
4% >20% Grow th essentially
driv en by pipeline
120 (40 hotels) and
impact from
37 renov ations

RevPAR Management fees 2010 2016E

Source: Company data, HSBC Source: Company data, HSBC

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Synergies expected

Total EBITDA
level synergy
of EUR65m Hotel p&l
max imization
15%

Support costs Marketing &

optimisation distribution
55% efficiency
30%

Source: Company data, HSBC

As a result of the portfolio changes, Accor is now a more diversified business.

Geographical distribution of Accor portfolio by revenues

2013 2015 Hotel services only
Worldw ide Worldw ide Worldw ide
structures structures structures
1% 1% 4%
Americas Americas
9% Aspac 7% France
Americas
France
Aspac France 10% 8%
10% 33% 31% 26%

MMEA MMEA
8% 9% Aspac
27%
MMEA NCEE
NCEE NCEE 10% 25%
39% 42%

Source: Company data, HSBC calculations

The brand portfolio has also been enhanced with three globally recognised brands in luxury and
a better mix of exposure across the price scale.

Brand composition of Accor portfolio by rooms

2013 H1 16 Hotel services only

Upscale
Upscale
11% Upscale
16%
21%
Economy
Economy Economy 41%
47% Mid- 47% Mid -
Mid -
scale scale
scale
42% 36%
Multi- Multi- 37%
brand brand
1% 1%
Source: Company data, HSBC calculations

The business mix has moved from an asset-heavy business with considerable lease exposure,
to more asset-light and fee driven. This will clearly be accelerated when HotelInvest is sold off.

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Accor portfolio by business model

2013 H1 16* Hotel services only

Owned Owned
8% Franchised 9% Variable
Franchised Variable 32% lease
27% lease 15%
Managed
22% Fixed 52%
Fixed lease Franchised
lease 8% 48%
Managed Managed
32% 11%
36%

Source: Company data, HSBC calculations

*Variable lease rooms include variable lease on EBITDAR

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Accor timeline
Date Event
27-Aug-13 Sébastien Bazin is appointed as Chairman and CEO

4-Nov-13 Sold 19.4% stake in the Tourism Asset Holdings Ltd. (TAHL) for a value of AUD66m (EUR46m), and a repayment
of AUD76m (EUR53m) loans

24-Feb-14 Sold stake in Reef Casino in Australia for AUD85m

27-May-14 Purchased 97 hotels in Europe (67 - Germany, 19 - Netherlands, and 11 - Switzerland) for EUR900m to deploy
HotelInvest strategy

21-Oct-14 Offered to transfer management of its Central European operations to Orbis (52.7% held by Accor) for EUR142m

30-Oct-14 Launched digital transformation plan - EUR225m investment between 2014 and 2018, acquisition of French start-
up Wipolo
14-Dec-14 Alliance between Accor and Huazhu; combined access to over 2,000 hotels in China; 10% stake in Huazhu

18-Feb-15 Sale and management-back agreement of the Zurich MGallery for EUR55m

17-Apr-15 Digital strategy – took over Fastbooking

29-Apr-15 Sale & franchise-back of 29 hotels in Germany and the Netherlands for EUR234m

21-May-15 Sale & franchise-back of seven hotels in the United Kingdom and Ireland for EUR38m

3-Jun-15 AccorHotels accelerates its transformation – AccorHotels.com opened to independent hoteliers; creation of a BtoB
digital services activity; launch of the new version of single mobile app AccorHotels

16-Oct-15 Purchased 43 hotels (4,237 rooms) in France, for a total of EUR281m (HotelInvest transformation)

1-Dec-15 Purchased three hotel asset portfolios in Europe representing 29 hotels (3,677 rooms), for a total of EUR284m
(HotelInvest transformation)

9-Dec-15 AccorHotels to acquire three hotel brands – Fairmont, Raffles and Swissôtel for 46.7m new Accor shares and a
cash payment of USD840m (EUR768m)

27-Jan-16 AccorHotels and Huazhu finalised strategic alliance – 10.8% stake in Huazhu and a seat in group's board of directors;
Huazhu took 29.3% stake and 2 board seats in AccorHotels’ luxury and upscale operating platform for Greater China

27-Jan-16 Negotiations for sale of a portfolio of 85 hotels in Europe in the economy and midscale segments, for EUR504m

18-Feb-16 Acquired 49% stake in Squarebreak, the disruptor operator of hotel homes in France

18-Feb-16 Acquired 30% stake in Oasis Collections, a curated marketplace for private rentals

5-Apr-16 Acquired Onefinestay for EUR148m (GBP117m) and makes a further commitment of EUR64m (GBP50m) to help
the company scale internationally

1-Jul-16 Finalised the disposal of 85 hotels to Grape Hospitality, owned 70% by Eurazeo and 30% by AccorHotels

12-Jul-16 Closed the acquisition of Fairmont, Raffles and Swissôtel

12-Jul-16 AccorHotels initiates project to turn HotelInvest into a subsidiary to accelerate its transformation and growth

27-Jul-16 AccorHotels to acquire 80% stake in John Paul (EV of USD150m, ie 2017e EV/EBITDA multiple of c11x)

28-Jul-16 Hertz and AccorHotels announced their partnership to enrich the benefits offered by the loyalty programme, Le
Club AccorHotels
Source: Company data, HSBC

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But the backdrop remains unhelpful

The Accor team has been executing on its ambitious strategy against a difficult backdrop.

French RevPAR has been in decline since the Paris attacks in November 2015. In H1 2016,
Accor’s RevPAR was down 2.2% in France (-2.5% Q1), with Paris down 12% as the city
continues to be adversely affected. To add to the situation, floods and strikes occurred in May
and June. Regional cities, however, reported RevPAR up 6% but this was due to the UEFA
football championship.

The Americas segment was also weak for Accor, with RevPAR down 1.5% in H1 (+0.6% in Q1),
mainly affected by the economic situation in Brazil. However, the Olympic Games could boost
the Q3 data, especially for the month of August.

RevPAR LFL growth yoy

Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16
France- RevPAR -1.8% 4.2% 3.5% -0.9% -2.1% 0.5% 1.8% 3.3% 4.2% 2.2% 1.4% -6.0% 4.2% -1.9%
Occupancy -0.6% 2.6% 0.1% -2.4% -1.4% 0.0% 1.5% 2.4% 2.0% 0.5% 0.4% -2.5% 1.2% -2.1%
ADR -0.7% 1.1% 2.5% 1.0% -0.5% 0.4% 0.2% 0.6% 1.2% 1.5% 0.9% -2.1% 2.0% 1.1%
NCEE -0.8% 2.4% 3.3% 6.4% 6.5% 3.0% 6.4% 4.9% 7.2% 5.3% 6.7% 3.7% 7.2% 5.3%
MMEA 9.1% 6.4% 6.4% 6.7% 8.4% 7.6% 10.6% 4.1% 3.6% 1.3% 9.9% 0.6% 3.6% -5.2%
AsPac 2.4% 1.8% 3.9% 6.2% 4.1% 1.5% 3.1% 3.2% 5.2% 2.7% 4.9% 2.5% 5.2% 6.7%
Americas 4.7% 25.4% 13.1% 5.1% 7.1% 5.7% 7.9% 0.1% 1.3% -9.1% -6.2% -6.1% 1.3% -1.5%
Total 1.5% 5.0% 4.8% 4.6% 4.3% 3.0% 5.1% 3.4% 4.9% 2.0% 3.8% -0.6% 4.9% 1.6%
Source: Company data, HSBC

We like the long-term vision but it comes with execution risk

We think the vision driving Accor’s strategy is credible and forward looking. By becoming a go-to
player in hospitality, whether that be for hotels, rental accommodation or concierge services, Accor
wants travellers to depend on its platforms and services for their journey from start to finish. This
vision is driving the investment in digital, rental accommodation and concierge services.

Investment in digital
In October 2014, Accor launched its digital strategy, which was really all about catching up with
industry technology and eventually getting ahead of the very clear and fast pace changes occurring.

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Digital plan and progress across the 8 programs

Clients Employees Partners System Data

M 1 2 3 4 5 6 7 8
Digital Mobile Customer Seamless Mice & Employee Owners & Infrastructure BI &
Marketing First Centric Journey B to B Friendly Partners Transformation Analytics

Sev eral 45% v iew s on Voice of the 1m Welcome 120 French 20k employ ees New partner Transition to New mobile
campaigns on mobile 880k Guest rolled out e-check in companies enrolled on portal rolled out serv ice contract tool for
social netw orks dow nloads of in 3,700 hotels using internal social on time and for CRS w ith General
w ith 6M the unique app 2,500 hotels AccorHotels netw ork in budget Atos managers
follow ers 8X Le Club Online rev iew s deploy ed New business 3 months (Nearshoring) deploy ed in
enrolment on up 25% v s. w orldw ide solutions, Progressiv e completed on 1,000 hotels
the app 2014 av ailable in roll-out of time (ongoing)
3,000 e-billing
hotels

Source: Company data, HSBC

Accor’s five year targets set in Oct 2014 are shown below:

Digital KPI’s Oct 14 Target

Web Channel (Direct & Indirect) 35% 50%
Mobile in Direct Web Channel 12% 40%
Le Club Business Volume 24% 40%
TARS (Accor’s reservation system) contribution 59% 70%
Source: Company data, HSBC

The investment announced was EUR225m between 2014 and 2018, with a capex/opex split of
55/45%. Of the total amount, 60% is aimed at middle/back office improvements (defensive) and
40% to drive market share and cost savings (offensive). Added to this are now the costs of
Marketplace (the new hotel distribution platform) at EUR25m of which 88% is opex).

5-year original digital investment plan Actual digital spend

100 (In EURm) 100 (In EURm)

85 86 78
90 90
80 13 12 80 12
70 70
60 31 49 60
33 43
50 50
40 18 40
30 25 30
20 39 43 20
31 17 32
10 10
5 8 5
0 0
2014 2015 2016 2017 2018 2014 2015
Capex Opex Market place Capex Opex Market place
Source: Company data, HSBC Source: Company data, HSBC

Accor has also made some interesting acquisitions to build on the digital strategy. Together with
the launch of the digital plan, it acquired a French start-up, Wipolo, a travel software company
that offers mobile and web itinerary management services. In April 2015, the takeover of
FASTBOOKING, a digital solutions provider was announced. FASTBOOKING serves 4000
hotels worldwide and provides hotel website development, distribution solutions, digital

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marketing, revenue optimisation and competitive intelligence. It’s a French company with a
focus on Europe and Asia, suiting Accor’s footprint. In June 2015, an unorthodox initiative was
unveiled by Accor, transforming the AccorHotels.com platform into a market place, which is
opened to select independent hotels.

Accorhotels.com: Breakdown by segment Accorhotels.com with Marketplace:

(June 15) Breakdown by segment (estimate)

~3,800 hotels >10,000 hotels

Upscale
10% Upscale
Midscale 19%
32%

Economy
Economy 30%
58%
Midscale
51%

Source: Company data, HSBC Source: Company data, HSBC

Accorhotels.com: Geographical Accorhotels.com with Marketplace:

breakdown (June 15) Geographical breakdown (estimate)
Africa & Africa &
Middle Middle
Americas East East
7% 4% 7%
Americas France
18% 18%

Aspac France
18% 42%
Europe
(ex c
Europe Aspac France)
(ex c 23% 34%
France)
29%

Source: Company data, HSBC Source: Company data, HSBC

It also launched a new mobile app version with all brands under one app, with services for
pre/during and post stay for travellers. It’s clear from these acquisitions that Accor wants to engage
travellers from start to finish on all platforms and not limit the interaction to its own hotel customers.
The chart below shows the significant presence of these independent hotels,

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Hospitality industry profit share, June

2015

Digital Total profit

intermediaries
15% EUR70bn

Independent
hotels 44%
Others
12%

Chained
hotels
29%

Source: Company data (company reports, specialised press, analyst report, Bain
analysis and estimates), HSBC

Rental accommodation
More recently, Accor has purchased a 49% stake in Squarebreak, a 30% stake in Oasis
collections and bought the onefinestay business. These acquisitions show Accor’s belief in the
rise of rental accommodation. The move allows Accor to take a share of this growth market as
well as gain insight and relationships from them.

Private rental market

Primary focus
Luxury Retreats
Resorts

Secondary “Residence”
Le collectionist
homes Manager
HomeAway Square break (local service agencies)

Airbnb
Rental Real Estate
Inv estments Booking.com Oasis collections Agencies
Cities

Expedia
Primary
homes or Onefinestay
home base

Pure Digital platform Digital platform Local Property Manager Integrated offer of
(no exclusivity) property manager
(no exclusivity) + Property management (w/ or w/o exclusivity)
(No service to guests / service externalized with a
hosts in the core offer) to local Property Manager No distribution platform Distribution platform
(Optional or Mandatory) (with exclusivity)

Source: Company data, HSBC

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Market potential: Onefinestay

5* Average opportunity per major city Huge addressable market across

Average price per bedroom (In EUR)

400
major cities
4* EUR32bn upscale urban leisure
EUR800m upscale

300
leisure

3* x40
200

major
EUR1.6bn
2* cities
upscale
100

Budget
business
0

10k 36k 16k 14k 50k

EUR64bn upscale business
Hotel rooms
Source: Company data, HSBC

Squarebreak is a digital platform offering guests access to private upscale properties in resort
locations in France, Spain and Morocco and using local property managers to service this
accommodation like hotels.

Oasis collections offers a personalised service to leisure and corporate guests in the “Home
meets Hotel” accommodation. It offers apartments and associated services.

Onefinestay offers guests concierge services, access to member clubs and luxury serviced
rental homes when the owners are out of town. The company operates a portfolio of 2,600
properties under exclusive management in key gateway cities.

Concierge
The last acquisition (80%), which spans the activities of a number of previous ones, was John
Paul (at 11x 2017 EBITDA). John Paul is a premium concierge services business. The business
is based around technology, CRM and personalisation with a network of over 50,000 partners in
over 50 countries.

Accor has also embarked on other strategic initiatives:

 Hertz: Accor’s loyalty programme members will receive special car rental offers now that
Accor and Hertz (car rental provider) have formed a partnership.

 Orbitz: Orbitz has taken over all of Accor’s operations in Central & Eastern Europe
(including Poland, Hungary, Czech Republic, Slovakia, Romania, Bulgaria and Macedonia)
with a master license allowing it to develop all Accor brands in the region. It was part of a
deal where Orbitz (52.7% held by Accor) acquired Accor’s operating subsidiaries in the
countries, which included 38 existing and 8 pipeline hotels at the time.

 China Lodging company: In 2014, Accor formed an alliance with Huazhu (China Lodging) to
create a hotel company with over 2,000 hotels and a strengthened pipeline. The businesses
combined distribution and loyalty programmes. Certain Accor brands (ibis, ibis styles,
Mercure, Novotel and Grand Mercure) became part of Huazhu under a master franchise for
China with a plan to develop 350-400 new Accor branded hotels in the midterm; Accor took
a 10% stake in Huazhu and a seat at the board. The deal essentially combines Accor’s
brands and network with Huazhu’s local expertise and development capacity in China.

Given the evolving popularity of these segments, we think Accor is making bold but well-placed
strategic moves. In five years’ time, the non-hotel part of Accor could be worth up to a third of
group revenues, in our view. That said, with an innovative forward-thinking strategy, there is an
inevitable element of risk. Not all acquisitions may turn out to be successful and timeframes for
financial success can be unpredictable. Most importantly for investors, the return on investment

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EQUITIES  HOTELS RESTAURANTS & LEISURE
19 September 2016


may not be as immediate or clear as they’d like on every individual investment. Investors may
therefore worry that any excess cash from the HotelInvest spin-off may be spent on acquisitions
with a lengthy or uncertain pay-back period.

A credible business, not especially cheap

We value Accor using a sum-of-the-parts valuation.

We assume the company can achieve a EUR7bn valuation for the HotelInvest portfolio
(including cEUR300m for the seven new assets from FRHI) which translates to a 10.5x EBITDA
multiple. For HotelServices we use comparable asset-light peers. Peers are IHG (IHG LN,
3238p, Hold), Choice Hotels International Inc. (CHH US, USD46.6, NR), Marriott International
Inc. (MAR, USD69.3, NR) and Starwood Hotels & Resorts Worldwide Inc. (HOT, USD75.9, NR)

This yields a target price of EUR38 (see table overleaf). Our target price implies upside of 7.4%;
given the short-term earnings pressure, we initiate with a Hold rating.

Accor SOTP
EURm 2017e EBITDA Multiple Value
HotelInvest 647 10.8x 7,000
HotelServices 617 11.5x 7,095
Central (95) 12.0x (1,138)
1,169 12,958

Investments 120
Associates 300
Net debt (1,228)
Hybrid (900)
Minorities (470)
Equity value 10,780
No. of shares (m) 285
Value per share (EUR) 38
Source: HSBC estimates

HotelServices multiple calculation 2016 2017 1 Yr Fwd

IHG 13.0 12.0 12.3
Choice 13.1 12.3 12.6
Marriott 10.6 8.7 9.3
Starwood 12.0 11.8 11.9
Average multiple 11.5
Source: Bloomberg, HSBC estimates

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ACCP EPS vs 2014 PE- rebased to Jan 2013

ACCP EPS ACCP 12m fwd P/E

1.60
1.50
1.40
1.30
1.20
1.10
1.00
0.90
0.80
Jan-13
Mar-13

Jun-13

Jan-14
Mar-14

Jun-14

Jan-15
Mar-15

Jun-15

Jan-16
Mar-16

Jun-16
Jul-16
Jul-13

Jul-14

Jul-15
Feb-13

Feb-14

Feb-15

Feb-16
May-13

Nov-13
Dec-13

May-14

Nov-14
Dec-14

Nov-15
Dec-15

May-16
Aug-13
Sep-13

Aug-14
Sep-14

May-15

Aug-15
Sep-15

Sep-16
Aug-16
Apr-14

Apr-15

Apr-16
Apr-13

Oct-13

Oct-14

Oct-15
Source: DataStream, HSBC

ACCP 12M forward P/E vs 12M forward relative P/E

30x ACCP- 12m fwd P/E 3.0x

ACCP 12m fwd P/E rel. to DJ SOXX 600 (RHS)
25x 2.5x

20x 2.0x

15x 1.5x

10x 1.0x

5x 0.5x
Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16

Source: DataStream, HSBC

Risks
Upside risks include a recovery in French RevPAR, strong execution of asset sales and high
return of cash to shareholders. Downside risks include further geopolitical events, further cost
pressures and execution risk on acquisitions.

Catalysts
Potential catalysts include RevPAR data (especially for France), news around HotelInvest sell-
off/cash return and the strategy day on 5 October.

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EQUITIES  HOTELS RESTAURANTS & LEISURE
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

Accor: Summary financials (EURm, YE Dec)

Profit & Loss FY 13A FY 14A FY 15A FY 16E FY 17E FY 18E
HotelServices 1,254 1,248 1,339 1,532 1,807 1,965
HotelInvest 4,798 4,794 4,815 4,548 4,604 4,687
Corporate (627) (588) (574) (573) (577) (579)
Revenues 5,425 5,454 5,581 5,507 5,835 6,073
growth -3.9% 0.5% 2.3% -1.3% 5.9% 4.1%

HotelServices 434 435 426 461 613 714

HotelInvest 1,354 1,401 1,424 1,364 1,404 1,429
Corporate (57) (64) (70) (88) (91) (90)
EBITDAR 1,731 1,772 1,780 1,738 1,926 2,053
growth -3.2% 2.4% 0.5% -2.4% 10.8% 6.6%
margin 31.9% 32.5% 31.9% 31.6% 33.0% 33.8%

HotelServices 412 411 399 439 617 740

HotelInvest 486 573 654 622 647 681
Corporate (52) (61) (66) (85) (95) (99)
EBITDA 846 923 986 977 1,169 1,322
growth -0.5% 9.1% 6.8% -0.9% 19.7% 13.0%
margin 15.6% 16.9% 17.7% 17.7% 20.0% 21.8%

HotelServices 380 376 359 378 505 598

HotelInvest 197 292 378 374 398 428
Corporate (56) (66) (71) (83) (86) (92)
EBIT 521 602 665 670 817 934
growth -1.1% 15.5% 10.5% 0.7% 22.1% 14.2%
margin 9.6% 11.0% 11.9% 12.2% 14.0% 15.4%

Net profit 311 386 371 412 523 614

growth 0.1% 24.1% -4.1% 11.3% 26.9% 17.4%
margin 5.7% 7.1% 6.6% 7.5% 9.0% 10.1%

EPS (EUR) 1.36 1.67 1.57 1.66 1.84 2.16

growth -0.4% 22.4% -5.8% 5.7% 10.8% 17.4%
DPS (EUR) 0.80 0.95 1.00 0.96 1.10 1.19
growth 5.3% 18.8% 5.3% -3.9% 14.6% 7.6%
Source: Company data, HSBC estimates

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EQUITIES  HOTELS RESTAURANTS & LEISURE
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

Disclosure appendix
Analyst Certification
The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the
opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their
personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific
recommendation(s) or views contained in this research report: Lena Thakkar and Joseph Thomas

Important disclosures
Equities: Stock ratings and basis for financial analysis
HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's
existing holdings, risk tolerance and other considerations and that investors utilise various disciplines and investment horizons
when making investment decisions. Ratings should not be used or relied on in isolation as investment advice. Different
securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations and
therefore investors should carefully read the definitions of the ratings used in each research report. Further, investors should
carefully read the entire research report and not infer its contents from the rating because research reports contain more
complete information concerning the analysts' views and the basis for the rating.

From 23rd March 2015 HSBC has assigned ratings on the following basis:
The target price is based on the analyst’s assessment of the stock’s actual current value, although we expect it to take six to 12
months for the market price to reflect this. When the target price is more than 20% above the current share price, the stock will
be classified as a Buy; when it is between 5% and 20% above the current share price, the stock may be classified as a Buy or a
Hold; when it is between 5% below and 5% above the current share price, the stock will be classified as a Hold; when it is
between 5% and 20% below the current share price, the stock may be classified as a Hold or a Reduce; and when it is more
than 20% below the current share price, the stock will be classified as a Reduce.

Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation or resumption of coverage,
change in target price or estimates).

Upside/Downside is the percentage difference between the target price and the share price.

Prior to this date, HSBC’s rating structure was applied on the following basis:
For each stock we set a required rate of return calculated from the cost of equity for that stock’s domestic or, as appropriate,
regional market established by our strategy team. The target price for a stock represented the value the analyst expected the
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Overweight, the potential return, which equals the percentage difference between the current share price and the target price,
including the forecast dividend yield when indicated, had to exceed the required return by at least 5 percentage points over the
succeeding 12 months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight,
the stock was expected to underperform its required return by at least 5 percentage points over the succeeding 12 months (or
10 percentage points for a stock classified as Volatile*). Stocks between these bands were classified as Neutral.

*A stock was classified as volatile if its historical volatility had exceeded 40%, if the stock had been listed for less than 12
months (unless it was in an industry or sector where volatility is low) or if the analyst expected significant volatility. However,
stocks which we did not consider volatile may in fact also have behaved in such a way. Historical volatility was defined as the
past month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating,
however, volatility had to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.

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EQUITIES  HOTELS RESTAURANTS & LEISURE
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

Rating distribution for long-term investment opportunities

As of 16 September 2016, the distribution of all independent ratings published by HSBC is as follows:
Buy 43% ( 25% of these provided with Investment Banking Services )
Hold 41% ( 25% of these provided with Investment Banking Services )
Sell 16% ( 19% of these provided with Investment Banking Services )
For the purposes of the distribution above the following mapping structure is used during the transition from the previous to
current rating models: under our previous model, Overweight = Buy, Neutral = Hold and Underweight = Sell; under our current
model Buy = Buy, Hold = Hold and Reduce = Sell. For rating definitions under both models, please see “Stock ratings and basis
for financial analysis” above.

For the distribution of non-independent ratings published by HSBC, please see the disclosure page available at
http://www.hsbcnet.com/gbm/financial-regulation/investment-recommendations-disclosures.

Share price and rating changes for long-term investment opportunities

Accor (ACCP.PA) share price performance EUR Vs Rating & target price history
HSBC rating history
From To Date Analyst
Underweight Neutral 06 Feb 2014 Lena Thakkar
Neutral N/A 02 Mar 2015
51
Target price Value Date Analyst
46
Price 1 27.00 28 Nov 2013 Lena Thakkar
41 Price 2 36.50 06 Feb 2014 Lena Thakkar
36 Price 3 38.00 21 Jul 2014 Lena Thakkar
Price 4 41.00 21 Jan 2015 Lena Thakkar
31 Price 5 N/A 02 Mar 2015
26 Source: HSBC

21
16
Sep-11

Sep-12

Sep-13

Sep-14

Sep-15

Sep-16

Source: HSBC

To view a list of all the independent fundamental ratings disseminated by HSBC during the preceding 12-month period, please
see the disclosure page available at www.research.hsbc.com/A/Disclosures.

HSBC & Analyst disclosures

Disclosure checklist
Company Ticker Recent price Price date Disclosure
ACCOR ACCP.PA 35.40 15 Sep 2016 2, 5, 6, 7
Source: HSBC

1 HSBC has managed or co-managed a public offering of securities for this company within the past 12 months.
2 HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next 3
months.
3 At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this
company.
4 As of 31 August 2016 HSBC beneficially owned 1% or more of a class of common equity securities of this company.
5 As of 31 July 2016, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of investment banking services.
6 As of 31 July 2016, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of non-investment banking securities-related services.
7 As of 31 July 2016, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of non-securities services.
8 A covering analyst/s has received compensation from this company in the past 12 months.

18
EQUITIES  HOTELS RESTAURANTS & LEISURE
19 September 2016


9 A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as
detailed below.
10 A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this
company, as detailed below.
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securities in respect of this company
12 As of 13 September 2016, HSBC beneficially held a net long position of more than 0.5% of this company’s total issued
share capital, calculated according to the SSR methodology.
13 As of 13 September 2016, HSBC beneficially held a net short position of more than 0.5% of this company’s total issued
share capital, calculated according to the SSR methodology.
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EQUITIES  HOTELS RESTAURANTS & LEISURE
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

Disclaimer
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[527904]

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 

Global Consumer Brands & Retail

Research Team
Analyst Agricultural Products
Europe
Lina Yan +852 2822 4344
linayjyan@hsbc.com.hk Analyst
Consumer Brands & Retail
Alexandre Falcao +1 212 525 4449
Global Head of Consumer Brands & Retail Scott Chan +852 3941 7005 alexandre.p.falcao@us.hsbc.com
Research scotttkchan@hsbc.com.hk
Antoine Belge +33 1 56 52 43 47 Analyst
antoine.belge@hsbc.com Analyst Ravi Jain +1 212 525 3442
Permada (Mada) Darmono +65 6658 0613 ravijain@us.hsbc.com
Analyst permada.w.darmono@hsbc.com.sg
Anne-Laure Bismuth +44 207 991 6587 Analyst
annelaure.bismuth@hsbcib.com Analyst Augusto A Ensiki +1 212 525 4915
Selviana Aripin +65 6658 0610 augusto.a.ensiki@us.hsbc.com
Head of Consumer Retail, Europe
David McCarthy +44 207 992 1326 selviana.aripin@hsbc.com.sg
david1.mccarthy@hsbcib.com Specialist Sales
Analyst
Analyst Amit Sachdeva +91 22 2268 1240 David Harrington +44 20 7991 5389
Andrew Porteous +44 20 7992 4647 amit1sachdeva@hsbc.co.in david.harrington@hsbcib.com
andrew.porteous@hsbc.com
Analyst Jean Gael Tabet +44 20 7991 5342
Analyst Kuldeep Gangwar +91 22 3396 0686 jeangael.tabet@hsbcib.com
Paul Rossington +44 20 7991 6734 kuldeep.gangwar@hsbc.co.in
paul.rossington@hsbcib.com
Analyst
Analyst Chloe Wu +8862 6631 2866
Jérôme Samuel +33 1 56 52 44 23 chloe.c.wu@hsbc.com.tw
jerome.samuel@hsbc.com
Associate
Analyst Eric Chen +8862 6631 2870
Emmanuelle Vigneron +33 1 56 52 43 19 eric.y.chen@hsbc.com.tw
emmanuelle.vigneron@hsbc.com

Analyst Associate
Graham Jones +44 20 7992 5347 Jenny Chae +822 3706 8774
graham.jones@hsbc.com jenny.chae@kr.hsbc.com

Analyst Gaming
Damian McNeela +44 20 7992 4223
damian.mcneela@hsbc.com Head of Gaming Research, Asia-Pacific
Charlene Liu +65 6658 0615
Analyst - Beverages charlene.r.liu@hsbc.com.sg
Anthony Bucalo +44 20 7991 9815
anthony.bucalo@hsbc.com Analyst
Scott Chan +852 3941 7005
Analyst scotttkchan@hsbc.com.hk
Joe Thomas +44 20 7992 3618
joe.thomas@hsbcib.com
North & Latin America
CEEMEA Consumer & Retail
Consumer Brands & Retail Global Head of Consumer Brands & Retail
Research
Analyst
Erwan Rambourg +1 212 525 8393
Bulent Yurdagul +90 212 3764612
erwanrambourg@us.hsbc.com
bulentyurdagul@hsbc.com.tr
Analyst
Analyst
Rafael Shin +1 212 525 6707
Jeanine Womersley +27 21 6741082
rafael.x.shin@us.hsbc.com
jeanine.womersley@za.hsbc.com
Analyst
Analyst
Ana C Hernandez +52 55 5721 2745
Ankur P Agarwal +971 4 423 6558
ana.c.hernandez@hsbc.com.mx
ankurpagarwal@hsbc.com
Analyst
Asia Henry Nasser +52 55 8551 2422
henry.nasser@hsbc.com.mx
Consumer Brands & Retail
Head of Consumer Brands and Retail Equity Food & Beverage
Research, Asia-Pacific
Karen Choi +822 3706 8781 Global Head of Beverages Research
karen.choi@kr.hsbc.com Carlos Laboy +1 212 525 6972
carlos.a.laboy@us.hsbc.com
Analyst
Christopher Leung +852 2996 6531 Analyst
christopher.k.leung@hsbc.com.hk Andrew Muench +1 212 525 4866
andrew.x.muench@us.hsbc.com