Silver Linings —

Silver Linings – Accor

Scott Morrison

Scott Morrison

Founder & CIO


The travel sector is unloved at the moment, but with recent good news on vaccines, things are looking more positive. CIO Scott Morrison details one travel stock that he thinks will bounce back faster than others.

For most of us following the global travel restrictions, as a result of the ongoing pandemic, we haven’t set foot in a hotel in over 8 months. In fact, this is the longest period since I started my career in the 90s that I haven’t been on the road. Most travel-related stocks, like cruises and airlines, have taken some hits. Although we have had positive vaccine news lately, we are still very cautious about the travel industry and its recovery. However, we do think there are some hidden gems that may recover better than others. One of these stocks is Accor S.A.

Accor S.A., headquartered in the outskirts of Paris, France, is the largest hotel operator in Europe, as well as the one of the largest in the world. They have 39 different hotel brands in their portfolio worldwide, which include a spectrum of price points from economy to luxury. Accor operate in 110 different countries and across 5100 different hotels.

November has brought the world good news in the form of positive progress on vaccines. I cannot tell you how many people I have heard say they want to travel to Europe on the other side of this crisis. This gives us confidence in the next 2-3 years that we will see their hotels recover. Obviously not everyone is going to feel comfortable to travel right away and some types of business gatherings will not return to the same volume we saw in 2019. Therefore, when we researched the hotel sector we wanted to choose a company that had a balance sheet that can weather any turbulence that may impede the recovery back to the world we knew before COVID-19.

When we started buying the stock, it was trading more than 50% below its all-time high, despite the fact that Accor didn’t have the need to issue new equity (unlike many of it’s competitors). Back in 2018, we had hosted the Accor CFO, Jean-Jacques Morin, in our Toronto office, shortly after Accor had divested their real estate business. When I recently spoke to M. Morin, who is also now the deputy CEO, I was quick to congratulate him on turning their balance sheet into a fortress, especially compared to many other hotel managers, who are now suffering.

M. Morin and our team also discussed an overlooked asset they have on their balance sheet: an equity stake in the Huazhu Hotels Group, listed in Hong Kong. Accor partnered with this Chinese hotel operator last decade and they respectively took equity stakes in each other’s businesses. Fortunately for Accor, China travel trends have returned almost completely back to pre-COVID levels. Huazhu Hotels Group in China’s second largest hotel operator and Accor owns 3.3% equity stake in this company.

The go-forward desire and resources of Chinese residents to travel the world is a reason itself to buy Accor. When you look at Accor’s balance sheet they have over €3 billion of cash and marketable securities to get them to the other side of the COVID crisis. An Accor Investor Relations executive said to us on a recent call “we have a ‘gorgeous’ balance sheet”.

We believe the time is now to own shares in this world leader. It’s rare to find companies with a very strong management team, who has made wise capital allocation decisions in the past, in order to emerge from this crisis stronger than the rest of the competition.