Retail investors are collecting hotel sector shares anticipating an unprecedented growth in the tourism sector in the medium term and making way for this sector to be re-rated, stockmarket analysts said.
Srimal Liyanage, Head of Research Lanka Securities said that investors during the last few weeks had showed interest in the hotel sector expecting a better future performance, anticipating an increase in tourist arrivals which were affected in the past as a result of the ethnic crisis. “This sector will take off in the medium term,” he said.
Mr. Liyanage said that most of the hotels are positioned on the southern coastal belt which is the most preferred destination by high networth Western European visitors. There are 33 hotels and resorts listed on the Colombo Stock Exchange.
Geeth Balasuriya, Manager Research Acuity Brokers, said the war situation in the Northeast and negative travel advisories by key tourist generating markets affected tourism. “The tax environment has also discouraged new investments in the industry while with low earning potential and rising operational costs, listed hotel companies saw a drop in the share prices in recent years. But the gradual removal in travel advisories will increase the number of tourist arrivals in the country,” he said.
A C.T. Smith Research report said that given the continuing global economic crisis, the likelihood that discretionary expenditure on long haul tourism will be reduced exists, and although the military aspect of the two and a half decades-long conflict has ended the recovery is likely to be medium term.
“Local and global economic conditions have put pressure on returns from hotel sector companies, with most reporting below par results in the third quarter. Short-term earnings growth (inclusive of the fourth quarter and 2010 first quarter) is also expected to be subdued, up until a significant turnaround is seen in tourist arrivals and occupancy levels in Sri Lanka. Additionally, discounts and other special packages offered by local hotels in a bid to entice tourists to the island in the short term, may also limit earnings by depressing sector gross profit margins,” the report said. |
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