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Citi's reasoning was that Mantra's full year earnings growth forecast of 11 per cent was unrealistic and the company had placed too high an expectation on the benefits of the 2018 Commonwealth Games on the Gold Coast. Citi also reasoned the 'Airbnb effect' would eat into Mantra's bottom line.
"Given the downside risks to FY18 earnings, we no longer recommend investors buy at current levels. We consider the stock to be fairly priced at 16 times FY18," Citi Equities analyst Sam Teeger wrote.
Morgan Stanley endorsed Citi's views by placing a hold rating on MTR on the same day, saying the rising Australian dollar could cause earnings to decline by seven to 11 per cent.
Five days later and Citi has re-rated MTR back to 'buy' following its $52.5 million acquisition of the seven-property Art Series Hotel Group on Monday.
The Arts Series buyout continues Mantra Group's domestic acquisition strategy and will add more than 1,000 room in Melbourne, Brisbane and Adelaide.
It's expected the Art Series acquisition will contribute approximately $7 million in underlying EBITDA in its first full year of ownership, which includes The Chen, Box Hill, which is expected to open in November 2017 and will be loss making in its first year of ownership.
After this, the portfolio is expected to contribute between $8.5 million and $9 million to underlying EBITDA.
At around 12.30pm (AEST), MTR shares were up one per cent to $2.89, well below Citi's revised target price of $3.25.
Business News Australia
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