Pick Up Park For Peanuts
- The value investor’s purpose is to capitalize upon “a favorable difference between price on the one hand and indicated or appraised value on the other.”.
- While Park lacks diversified brand affiliations, the company mitigates the risk by owning such a diversified portfolio.
- Park is trading at almost the same multiple as Chatham (8.6x), suggesting that Park is getting absolutely no credit for its diversified platform and premium brand flags.
- I am upgrading Park from a Buy to Strong Buy.
Last week, Chinese conglomerate HNA Group, a 25% shareholder of Park Hotels & Resorts (PK), announced that it was seeking to sell all or part of its ownership (more than 53 million shares). As Floris van Dijkum, equity analyst with Boenning & Scattergood, wrote in a research report,
The HNA situation should continue to depress PK’s stock performance until the overhang is lifted. New of the pending sale helped to send PK’s share price down 5.8% on Friday.”
HNA was founded in 2000 and is involved in a variety of industries such as aviation, real estate, financial services, tourism, logistics, and more. In addition to PK, HNA also has substantial stakes in Grand China Air and Hilton Worldwide (NYSE:HLT). In July 2017, HNA was ranked #170 in Fortune Global 500 companies with more than $53.335 billion. (Source: Wikipedia)
According to Bloomberg, HNA is selling assets because of a “liquidity squeeze” in which more than $9 billion in HNA asset sales have emerged:
Reuters cites “HNA’s leverage” and “aggressive financing policy” for the aggressive actions and said that “in recent weeks (HNA has) also has raised additional financing by selling expensive short-term debt and pledging more of its shares for loans.”
Since the HNA news on Friday (March 2nd), PK shares have declined ~5%:
In my last PK article (on Seeking Alpha) I wrote that “when you invest in Park you are essentially investing in the premium Hilton brand. Conrad Hilton knew a thing or two about branding and the value proposition for owning shares in Park today is that you are essentially getting a slice of one of the best hotel brands in the world, at a discount.”
Conrad Hilton said,
The buyer is entitled to a bargain. The seller is entitled to a profit. So there is a fine margin in between where the price is right. I have found this to be true to this day whether dealing in paper hats, winter underwear or hotels.”
Well, that “fine line” is not as “fine” now, thanks to HNA Group’s announcement that it is unloading shares in Park Hotels. As Benjamin Graham wrote in The Intelligent Investor, the value investor’s purpose is to capitalize upon “a favorable difference between price on the one hand and indicated or appraised value on the other” and that is why I am “picking up Park for peanuts.”