MANTRA'S BILLION: WHAT A DIFFERENCE 18 MONTHS MAKES

Written on the 8 May 2015 by Nick Nichols

MANTRA'S BILLION: WHAT A DIFFERENCE 18 MONTHS MAKES

EIGHTEEN months ago Mantra Group (ASX:MTR) had trouble selling its growth story to institutional investors for around $240 million.

Now, it has become the Gold Coast's latest billion-dollar company thanks to a profit upgrade and a host of acquisitions since listing in June last year.

A $10,000 investment in Mantra Group's IPO would be worth more than $21,000 today, making it the Gold Coast's best-performing float and best performing stock this financial year.

It has even outshone global online action-wear retailer SurfStitch which has risen a stunning 70 per cent since its ASX float in December.

Mantra's $1.02 billion market capitalisation sits just behind G8 Education (ASX:GEM) and Retail Food Group (ASX:RFG) and, if its growth over the past year is any indication, it could easily become the Gold Coast's biggest company by market capitalisation.

Mantra revealed last week that it expects to beat prospect forecasts for FY15, targeting net profit between $35 million and $36.5 million up from the $32.6 million listed in its prospectus last year.

EBITDA (earnings before interest, tax, depreciation and amortisation) is expected to land between $71 million and $73 million, up from $69.5 million.

The $239 million IPO last June was the second attempt in six months by Mantra Group's owners, CVC Asia Pacific and UBS, to sell down their interest in the company. An earlier attempt in January 2014 was withdrawn due to weak market conditions.

However, since then, CVC and UBS have cashed in about $330 million of their investment in the company through the initial float and a subsequent $91 million selldown of shares released from escrow in April.

They still retain 30.4 per cent of the company which has secured a number of key acquisitions since listing.

The latest came last week, when Mantra Group announced it had acquired the management rights to the Soul tower in Surfers Paradise.

The deal struck 18 months after receivers and managers to the 77-level apartment development appointed Mantra to manage the property - it is reported to have been worth $20 million and the subject of intense competition from both national and offshore hotel operators.

Mantra Group CEO Bob East declines to reveal the figure paid, but he also stops short of disputing the reported price.

Soul has been a solid turnaround story for Mantra, which East says wasn't trading "particularly well" when it was appointed as manager.

"We've put a lot of focus on the restaurant service and raising room rates by about $50 to about $350. That really positioned the property as a premium product.

"We've also elevated the property to be number one on TripAdvisor. The reputation of the building is at an all-time high.  The team has also been awarded two chefs' hats for the restaurant, Seaduction, and we're really pleased with the way it's trading."

East says Soul will remain a part of the Peppers branding under the new management rights deal.

"It has a strong presence in the market."

The Soul acquisition was another key milestone in Mantra's keen interest in its home turf despite global expansion plans that have seen it push into both New Zealand and Indonesia.

Earlier this year, Mantra raised $50 million from investors to fund acquisitions, including the $29.5 million buyout of four resorts owned by Outrigger including Twin Towers Resort and the Outrigger Surfers Paradise.

It's a far cry from 18 months ago, when institutional investors shied away from the original ASX float proposal. In the latest capital raising, they paid $3.05 per share.

East, who has nurtured the company for the past nine years, concedes the most recent capital raising was relatively easy.

"Firstly there is money in the marketplace but obviously once you have the confidence of your investor base they are very willing to apply capital to a team that is delivering," East says.

"Our business hasn't really changed that dramatically. We've been doing a good job for a number of years but it's just taken a little while for (investors) to understand us, plus we have had more momentum recently."

East says Mantra's full-year profit upgrade has been driven by higher revenue from existing properties, while new acquisitions will largely come into play in FY16.

"Leisure is improving and Gold Coast, Noosa and Cairns are the standouts," he says.

"Gold Coast has performed marginally ahead of expectations and we expect growth to continue. The inbound market in particular is driving higher occupancies and room rates.

"But Sydney and Melbourne were the bigger drivers of growth. The business market in those two markets are up, and Melbourne is the particular standout."


Author: Nick Nichols

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