A dividend increase and better-than-expected net profit gain from Action Hotels (AHCG:AIM) sends shares in the Middle East hotels operator up 3.9% to 53.5p.

The £78 million cap, which operates mid-market hotels like Ibis and Premier Inn, made a net profit of $2.8 million in 2015, ahead of management expectations and a 47% increase on the previous year.

This was led by an increase in mature hotel occupancy from 78% to 79.3% and the contribution of three new hotels.

The final dividend has been lifted by 1.8% to 1.47p per share. This brings the total dividend for the year to 2.21p per share, giving it an attractive yield of 4.3%.

ACTION HOTELS - Comparison Line Chart (Rebased to first)

The group says 2016 has started well with revenue 14% higher than the same period last year. It’s on track to open a further three hotels this year, taking the total for 2016 to five.

We added Action Hotels as a Play of the Week on 18 February, when it was trading at a 37.7% discount to its net asset value. We think it’s a good way to get exposure to the booming intra-regional travel industry in the Middle East, where there is still an under-supply of mid-market hotels.

The group will have at least 2,650 rooms by 2018 and plans to have 5,000 by 2020.

‘The dynamics in the Middle East remain strong given the chronic undersupply of quality, affordable rooms at a time when the demand for intra-regional travelling across the GCC continues to grow,’ says Mike Allen, analyst at house broker Zeus Capital.

Zeus reckons Action’s shares will be worth in excess of 90p over the medium term, 68% higher than the current level of 53.5p.

Issue Date: 18 Apr 2016