Meliá (XMAD:MEL, Financial) (4.0%). In our letter for the first quarter, we indicated that Meliá was one of the companies most affected at short term, but the impact at long term would be limited, since it has a moderate debt and owns unique real estate assets with a valuation in normal circumstances of approximately 16€ per share and a family with a future vision.
Here the key factor is what its resistance capacity will be before its value decreases below the listing price (for example, assuming that there are no earnings due to closure, maintaining staff costs, leases on the hotels it does not own, etc.). The reality is that it can bear a lot more that can reasonably be expected. Even in a scenario involving a one-year stoppage, the revaluation potential would be quite more than doble.
Perhaps the most important thing about Meliá aside from the value of its assets, is that it does not have debt or liquidity problems. The current situation differs from that lived during the 2008-09 crisis mainly in this aspect. Only a tenth of its real estate assets have mortgage debt, that is, in a scenario in which this situation is prolonged a lot more, Meliá could mortgage or sell property.
It is also important to indicate that most of Meliá’s assets are very well situated, with investments in the reconditioning and improvement from 3-4 stars to 4-5 stars already made. The hotel sector will obviously suffer over these months, but the smaller ones will suffer more and there will be some family hotels that will end up closing, partly offsetting reduced demand with reduced supply.
As a result of all of this, we consider that with a long-term vision, our investment in Meliá will also be highly profitable.
From Francisco Garcia Parames (Trades, Portfolio)' Cobas Asset Management's second-quarter 2020 shareholder letter.
