While some analysts say there is room for share prices of hotels listed in the Colombo stock market to appreciate with the war situation coming to an end, others say it is a case of sentiment running faster than reality.
Srimal Liyanage, Head of Research Lanka Securities said that the leisure index (hotel and travel sector index which is a sub index in the Colombo Stock Exchange) dropped 37.2% to 1,204 index points this month after reaching a record high in November 2005 and has largely underperformed the market since 2006. “Since the prices have come down sharply and the industry is operating under tough conditions, there can be an improvement in the sector counters because some strategic deals are possible as positive developments in the war front may result in local and foreign funds giving more weightage to hotels.”
He also said that especially in standalone hotels there is room for strategic deals due to the existing owners facing difficulties to continue and potential buyers finding it cheaper to acquire a listed firm than incurring a high cost to construct one. “Also the ground situation in the country is improving, which will further attract tourists.”
He said that with increasing investor attention in these areas, the listed hotel sector needs to be re-rated in the short to medium term resulting in an upside potential on counters listed under the sector.
Mr. Liyanage said that Colombo city hotels always maintained an above average occupancy rate (averaged around 70% in the last five years). “This is due to high composition of business travellers and special purpose visitors stationed in Colombo.”
He said this performance is mainly driven by foreign visitors while domestic investors are also important in low arrival periods and off season.
But other analysts say that in the share market retailers are buying into hotels forgetting the world scenario. “Global economies are simultaneously coming down. For long term fundamentals to sustain in this sector, it will take a while,” an analyst said.
He said the short term sentiment that the ‘war is coming to an end’ has given some push to listed hotel prices, but the long term fundamentals will take more than 12 months. He also noted that the British currency has had an massive hammering during the past few months where travelers are being cautious. “This is one of our biggest markets,” he added.
Sri Lanka recorded a monthly year on year decline in tourist arrivals for the eighth consecutive month, with January 2009 arrivals being recorded at 38,468 down 32% from 56,916 in January 2008.
Whilst this is the steepest monthly decline seen in the last eight months, it should be noted that the estimated 13,000 Bohra arrivals recorded in January 2008 (and in January 2007) was not seen this year, and thus this likely contributed to the exaggerated monthly decline.
The Western European segment, which represents nearly 40% of Sri Lanka’s tourist arrivals for 2009, recorded a 25% decline for January 2009. Of this, the UK, Germany, and Netherlands recorded declines of 15%, 38% and 41% respectively amidst recessionary economic conditions, whilst France recorded an upturn in arrivals of 21% to 1,805 persons.
The decline in South Asian arrivals partly reflects the absence of Bohra community visitors this year, with visitor numbers from India, the country’s largest tourist generating market in 2008 (19% of total arrivals), being down 63%, according to official figures.
Around 242 hotels and resorts are registered under the tourist board of which 26% is classified under the board’s star categorization while 40% of the country’s hotels are positioned on the southern coastal belt. Only 33 hotels are listed. |
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