In the realm of timeshare and vacation ownership, Hilton Grand Vacations (HGV) stands out as a beacon of resilience and strategic growth, a narrative compellingly outlined by Matt Sweeney in Laughing Water Capital’s Q4 2023 letter. Amidst a year fraught with challenges, including the impacts of natural disasters like the wild fires in Hawaii and the pressures of rising interest rates on its financing business model, HGV has demonstrated an unwavering commitment to enhancing its normalized earnings power.
The acquisition of Bluegreen Vacations (BVH), an unbranded player with robust partnerships, including those with Bass Pro Shops and NASCAR, marks a significant strategic expansion for HGV. While initially met with skepticism due to the timing post the integration of Diamond Resorts in 2021 and amidst a resumption of aggressive share repurchases, this acquisition is recognized for its inherent value and synergistic potential. HGV’s ability to secure this deal, not as the highest bidder but as the preferred partner, speaks volumes about its industry standing and strategic foresight.
This move not only broadens HGV’s customer acquisition funnel to include the lower end of the Hilton Honors loyalty network but also leverages the established trend of branded players extracting more value from unbranded assets in the timeshare industry. Furthermore, HGV’s commitment to share repurchases underscores management’s confidence in the company’s value proposition and its dedication to shareholder returns.
Looking ahead, two potential scenarios unfold for HGV. The first envisions the market recognizing HGV’s normalized earnings power, inclusive of BVH synergies, and appreciating the business’s durability beyond current perceptions. This scenario draws a stark contrast to the valuation discrepancies between HGV and the cruise line industry, especially considering the resilience HGV demonstrated through Covid-19 and its strong free cash flow (FCF) metrics. If the market corrects this valuation anomaly, HGV could see significant appreciation in its share price, potentially mirroring the gains experienced by entities within the cruise line sector.
Alternatively, HGV may continue on its path of capital return through aggressive share buybacks, becoming an “uber-cannibal” in the process. This strategy, while less glamorous in the short term, has proven highly effective for companies with consistent business models and a disciplined approach to capital allocation. Over time, HGV’s methodical growth and shareholder-centric policies could lead to substantial value creation, underpinned by a robust inventory position and the innate human desire for travel and experiences.
In essence, Hilton Grand Vacations presents a compelling investment narrative that transcends short-term challenges to highlight a future of strategic expansion, operational resilience, and shareholder value creation. With a long-term perspective, HGV embodies the potential for significant returns, whether through near-term market re-rating or sustained capital return strategies, making it a noteworthy consideration for investors seeking opportunities within the travel and hospitality sector.
25 years of cohort data that shows that overtime owners reliably increase their spend, which will increase earnings. Further, they are in a strong inventory position at present which represents continued future organic growth, and in this day and age travel is essentially a fundamental human need, right up there with food and shelter. All else equal I would prefer that shares of HGV rapidly re-rate, but I view this investment as a heads we win soon, tails we win more later setup.
DISCLAIMER: None of this is financial advice. This article was written based on information contained in a shareholder letter. None of the details have been verified. This article is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.
