Hilton Worldwide - Revenue royalty business
“The best business is a royalty on the growth of others, requiring little capital itself.” – Warren Buffett
Warren Buffet discussed this timeless mental framework which still rings true in the current environment. Hilton Worldwide Holdings (Hilton) is a revenue royalty business, whereby it earns a royalty revenue on the growth of global travel spend. Hilton’s extensive and growing network of brands and properties offers a significant and self-reinforcing value proposition to both guests and hotel owners, which creates a competitive moat around the business.
Hilton’s profitability transition has been remarkable over the past decade, pushing returns to record highs and well placed to capitalise on future growth. The capital-light nature of the business model has allowed Hilton to re-invest in the growth of its now 188 million membership programs, which has led to over 65% of all room occupancy to be Hilton members and further allowed hotel owners wanting to partner with Hilton for further growth.
Hilton’s durable growth is underpinned a remarkable resilient business model, which creates a powerful flywheel effect. The flywheel model works as follows: 1) Hilton maintains great brand recognition across its various portfolio of hotels with significant footprint 2) Which has the company building a large loyalty membership base 3) Hotel owners benefit from higher room occupancy and room rates, which incentivises them to re-invest 4) This translates to higher share of industry hotel unit growth over time. 5) Hilton can grow rapidly without the burden of heavy capital expenditure, leaving more cash for buybacks and dividends.
Hilton has the potential to grow its cashflow at around 10% per annum at 80% incremental margins while buying back around 5% of its shares annually, which translates to mid-teens earnings growth per share. Due to its strong positive flywheel effects, Hilton has organically built a healthy development pipeline of new, of which a large portion is under construction, which alone would be worth around $45 per share.
The company recently held an Investor Day in Washington D.C., where the management team articulated their competitive advantages and growth potential. At Blackwattle, we believe incentives drive outcomes. CEO Chris Nassetta has significant skin in the game, owning $750 million in Hilton stock. This aligns his interests squarely with those of the shareholders.
Hilton’s profitability transition has been remarkable over the past decade, pushing returns to record highs and well placed to capitalise on future growth. The capital-light nature of the business model has allowed Hilton to re-invest in the growth of its now 188 million membership programs, which has led to over 65% of all room occupancy to be Hilton members and further allowed hotel owners wanting to partner with Hilton for further growth.
Hilton’s durable growth is underpinned a remarkable resilient business model, which creates a powerful flywheel effect. The flywheel model works as follows: 1) Hilton maintains great brand recognition across its various portfolio of hotels with significant footprint 2) Which has the company building a large loyalty membership base 3) Hotel owners benefit from higher room occupancy and room rates, which incentivises them to re-invest 4) This translates to higher share of industry hotel unit growth over time. 5) Hilton can grow rapidly without the burden of heavy capital expenditure, leaving more cash for buybacks and dividends.
Hilton has the potential to grow its cashflow at around 10% per annum at 80% incremental margins while buying back around 5% of its shares annually, which translates to mid-teens earnings growth per share. Due to its strong positive flywheel effects, Hilton has organically built a healthy development pipeline of new, of which a large portion is under construction, which alone would be worth around $45 per share.
The company recently held an Investor Day in Washington D.C., where the management team articulated their competitive advantages and growth potential. At Blackwattle, we believe incentives drive outcomes. CEO Chris Nassetta has significant skin in the game, owning $750 million in Hilton stock. This aligns his interests squarely with those of the shareholders.
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Sunny has over 18 years of experience within funds management. Most recently, Sunny was a co-founder and Portfolio Manager at Antipodes, a manager overseeing $10 billion of funds. Sunny was co-Portfolio Manager of the Antipodes Global funds and was Lead Portfolio Manager of the Antipodes Asia fund. Prior to that, Sunny was working at Platinum Asset Management, a manager of global equities overseeing $16 billion of funds and worked at Westpac Institutional Bank. Sunny holds a Bachelor of Business (Finance and Software Engineering) from the University of Technology, Sydney. Sunny is the Portfolio Manager of the Blackwattle Global Quality Fund.
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Sunny has over 18 years of experience within funds management. Most recently, Sunny was a co-founder and Portfolio Manager at Antipodes, a manager overseeing $10 billion of funds. Sunny was co-Portfolio Manager of the Antipodes Global funds and...
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Sunny has over 18 years of experience within funds management. Most recently, Sunny was a co-founder and Portfolio Manager at Antipodes, a manager overseeing $10 billion of funds. Sunny was co-Portfolio Manager of the Antipodes Global funds and...
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