Fri | Jan 18, 2019

Byles gives thumbs up to Playa share buyback - Sagicor recoups some losses, but only slightly

Published:Wednesday | December 19, 2018 | 12:00 AMSteven Jackson/Senior Business Reporter
Chairman of Sagicor Group Jamaica and director of Playa Hotels & Resorts, Richard Byles.

Shares in Playa Hotels & Resorts rallied at the top of the week following an announcement by Playa to buy back its own shares.

The rally, so far, has restored about US$1.4 million in the value of Sagicor Group Jamaica's holdings in Playa as its second-largest shareholder with a 13 per cent stake in the hotel management company.

However, Sagicor, whose interest is split 9.4 per cent to Sagicor Real Estate X Fund and the rest in Sagicor Group, still has a deficit of around US$78 million to climb out of in order to regain ground lost on the stock since it sold its resorts to Playa in exchange for cash and shares in the Mexican company.

The loss, albeit unrealised as Sagicor has no plans to exit its position in Playa, still factors into the operations of Sagicor X Fund's financials, which already booked a $1.34-billion net loss for the September 2018 quarter arising from the fall in the Playa stock price.

Consequently, the share repurchase by Playa was welcomed by Sagicor Group Chairman Richard Byles, who is one of the two Jamaican representatives who gained seats on the Playa board. The other is Sagicor Group CEO Christopher Zacca.

"It indicates that the company believes the stock is undervalued," said Byles, who also described the buyback a good move for Playa investors.

In May, Sagicor and Playa closed a US$310-million deal in which Playa mainly acquired a series of Jewel, branded all-inclusive properties, development land and management contracts in exchange for offering 20 million units of Playa shares to Sagicor at about US$210 and, in addition to US$100 million in cash.

The Playa shares, which were worth some US$210 million at the close of the deal in summer, are now valued at around US$132 million.

On Monday, the board of Playa announced that it would spend up to US$100 million to buy back shares to stem the slide, which snowballed over several months.

Playa shares on the NASDAQ stock exchange closed at US$10.49 in May just prior to the finalisation of the Sagicor deal. The shares then slid to US$9.30 at the close of the September quarter and were trading at US$6.60 on Monday, having rallied by about seven per cent. On Tuesday, the stock price ticked up further to US$6.76 at around midday.

"In our view, the dislocation in the market price of our shares is the result of material but temporary construction and renovation projects currently under way at three of our properties. We believe that the potential to repurchase our shares at these levels represents a compelling opportunity to deploy our cash flow to drive shareholder value," said Playa Chairman and CEO Bruce Wardinski in filings on the US Securities and Exchange Commission.

The fall in the stock price was attributed to overall market unease rather than the fundamentals of the company.

For the September quarter 2018, Playa's quarterly revenues increased substantially year on year, from US$118.3 million to US$142.8 million, while its losses contracted from US$5.7 million to US$5.4 million. Over nine months, the company also grew its revenues, while its net profit tripled from US$11.4 million to US$33.2 million.

Following the release of those financials, estimates for the full-year results were lowered three times over the past 30 days with one upward revision, according to Zacks, an analyst and research site that tracks Playa. This lowered projected earning to US$0.25 cents from US$0.30, according to the site.

Playa is currently trading "well below its net asset value", according to Wardinski, who added that the repurchase programme would therefore dovetail with its overall objective to invest in undervalued assets. The analyst added that Playa may delay some capital projects that were yet to be signed off on by the board to support the repurchase programme.

Playa Hotels & Resorts owns and/or manages a total portfolio comprising 21 resorts with 7,769 rooms located in Mexico, Jamaica, and the Dominican Republic.

In Jamaica, Playa owns and manages Hyatt Zilara Rose Hall and Hyatt Ziva Rose Hall, Hilton Rose Hall Resort & Spa, Jewel Dunn's River Beach Resort, Jewel Grande Montego Bay Resort & Spa, Jewel Runaway Bay Beach & Golf Resort, and Jewel Paradise Cove Beach Resort & Spa.

steven.jackson@gleanerjm.com