Budget accommodation provider EasyHotel (EZH:AIM) has signed an agreement with United Arab Emirates-based investment group MAN Investments to develop EasyHotels in the Middle East.

The news, which follows two downgrades in the space of four months, sends shares in the £41.6 million cap up by 3% to 68.5p.

EASYHOTEL - Comparison Line Chart (Rebased to first)

MAN Investments will develop the hotels under a franchise arrangement and will initially focus on the United Arab Emirates and Oman.

It aims to open 600 rooms by 2017 and at least 1,600 rooms by the end of 2020. The first hotel is a 300-room hotel in Bur Dubai, the trading hub of Dubai.

MAN says there is a significant gap in the budget hotel sector in the Middle East. ‘Currently there are no hotel brands offering a combination of great value and superb quality and we feel that EasyHotel is perfectly designed to take advantage of this opportunity,’ it says.

Dubai, which is hosting the World Expo in 2020, is targeting inbound tourism growth of more than 30% to 20 million by 2021.

Investec analyst Alex Paterson says the franchise terms are likely to be very similar to those already in place and he estimates that 1,600 new franchised rooms should generate in excess of £1.2 million of revenue from financial year 2021.

The news is an encouraging development for EasyHotel, whose share price has fallen by 28% over the past year.

The key issue is whether the Middle East hotels can be opened on time as so far EasyHotel’s expansion has been considerably slower than expected, particularly for its owned hotels. This led Investec to slash its target price from 140p to 117p in June and then reduce it again to 100p in October, implying share price appreciation of 46%.

Issue Date: 10 Nov 2015