PPHE Hotel Group — Cost cutting for uncertain times

PPHE Hotel Group (LN: PPH)

Last close As at 22/05/2024

1,070.00

0.00 (0.00%)

Market capitalisation

455m

More on this equity

Research: Consumer

PPHE Hotel Group — Cost cutting for uncertain times

The trading update, following the update on 12 March 2020, highlights the expected drop in demand due to the COVID-19 virus, and strong actions by management to cut costs and preserve cash in the uncertain environment. We leave our forecasts unchanged following our recent downgrade of EBITDA for FY20e by 14%, but now assume no dividend payment in FY20, following the cut of the proposed final dividend for FY19 of 20p. The shares are trading at a discount of 68% to the EPRA NAV, and the majority of the hotels are freehold assets.

Russell Pointon

Written by

Russell Pointon

Director of Content, Consumer and Media

Consumer

PPHE Hotel Group

Cost cutting for uncertain times

COVID-19 trading update

Travel and leisure

19 March 2020

Price

820p

Market cap

£348m

Net debt (£m) at 31 December 2019

514.6

Shares in issue

42.5m

Free float

50.4%

Code

PPH

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(62.0)

(57.6)

(54.0)

Rel (local)

(43.4)

(35.8)

(33.4)

52-week high/low

2,140p

805p

Business description

PPHE Hotel Group (formerly Park Plaza Hotels) is an integrated owner and operator of four-star, boutique and deluxe hotels in gateway cities, regional centres and select resort destinations, predominantly in Europe.

Next events

Q1 trading statement

April 2020

Analysts

Russell Pointon

+44 (0)20 3077 5757

Milosz Papst

+44 (0)20 3077 5700

PPHE Hotel Group is a research client of Edison Investment Research Limited

The trading update, following the update on 12 March 2020, highlights the expected drop in demand due to the COVID-19 virus, and strong actions by management to cut costs and preserve cash in the uncertain environment. We leave our forecasts unchanged following our recent downgrade of EBITDA for FY20e by 14%, but now assume no dividend payment in FY20, following the cut of the proposed final dividend for FY19 of 20p. The shares are trading at a discount of 68% to the EPRA NAV, and the majority of the hotels are freehold assets.

Year end

Revenue (£m)

EBITDA*
(£m)

EPS*
(p)

DPS
(p)

EV/EBITDA
(x)

Yield
(%)

12/18

341.5

113.2

68.1

35.0

8.6

4.3

12/19

357.7

122.9

87.1

17.0

7.9

2.1

12/20e

326.6

110.5

37.6

0.0

8.8

0.0

12/21e

366.3

126.6

66.7

39.0

7.9

4.8

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

COVID-19 trading update

As expected, PPHE has seen an increase in cancellations and a significant slowdown in future bookings. In response, it is aggressively cutting costs by reducing capacity in Germany and Hungary (7% of FY19 EBITDA); temporarily closing two hotels in Amsterdam and reducing capacity elsewhere (12% of FY19 EBITDA), potentially closing 2,000 rooms in London (from c 3,700 rooms in the UK) temporarily (58% of FY19 EBITDA); reducing staff costs (46% of operating costs ex depreciation, amortisation and rent in FY19); and stopping payment of the final dividend for FY19 (a cash saving of c £8.5m). Many governments have committed to subsidising a significant portion of operating costs. In addition, the company has options to change the phasing of future investment. There are no comments on Croatia, which is more geared to summer travel.

Forecasts: Profit maintained but dividend cut

We leave our forecasts unchanged following our 12 March update note, in which we downgraded EBITDA for FY20 by 14%. Our assumption that occupancy reduces by 10pp in FY20 is equivalent to a 100% closure for one month, but the partial closures indicated by management above would suggest that occupancy reductions may be lower but for longer. We assumed a 30–40% drop-through of lost revenue to EBITDA, but the aggressive cost cutting and new government support to subsidise operating costs will mitigate margin downside. We now cautiously assume no dividend will be paid for FY20.

Valuation: Discount to NAV risen again

At 820p, the shares trade at a discount of 68% to the EPRA NAV of £25.46 at 31 December 2019. On our maintained forecasts, the EV/EBITDA multiples for FY20e and FY21e are 8.8x and 7.9x, respectively. The average EV/EBITDA multiple has been 8.2x since FY10.

Exhibit 1: Financial summary

£000s

2018

2019

2020e

2021e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

341,482

357,692

326,558

366,303

EBITDA

 

 

113,164

122,894

110,501

126,599

Operating Profit (before amort. and except.)

 

 

79,731

83,640

70,492

84,550

Intangible Amortisation

(2,462)

(2,495)

(2,372)

(2,372)

Operating Profit

77,269

81,145

68,120

82,178

Net Interest

(40,736)

(39,961)

(40,941)

(40,941)

Associates

144

178

178

178

Exceptionals

9,706

(2,885)

0

0

Profit Before Tax (norm)

 

 

36,677

41,362

27,357

41,415

Profit Before Tax (FRS 3)

 

 

46,383

38,477

27,357

41,415

Tax

(2,951)

4,105

(2,462)

(4,141)

Profit After Tax (norm)

33,726

45,467

24,894

37,273

Profit After Tax (FRS 3)

43,432

42,582

24,894

37,273

Minorities

(5,380)

(8,667)

(8,890)

(8,871)

Net income (norm)

28,346

36,800

16,004

28,402

Net income (IFRS)

38,052

33,915

16,004

28,402

Average Number of Shares Outstanding (m)

42.5

42.6

42.6

42.6

EPS - normalised (p)

 

 

68.1

87.1

37.6

66.7

EPS - normalised fully diluted (p)

 

 

68.1

87.1

37.6

66.7

EPS - (IFRS) (p)

 

 

89.9

80.0

37.8

67.0

Dividend per share (p)

35.0

17.0

0.0

39.0

EBITDA Margin (%)

33.1

34.4

33.8

34.6

Operating Margin (before GW and except.) (%)

23.3

23.4

21.6

23.1

BALANCE SHEET

Fixed Assets

 

 

1,316,600

1,393,210

1,443,956

1,492,661

Intangible Assets

21,463

18,036

15,664

13,291

Tangible Assets

1,151,616

1,215,140

1,268,080

1,318,980

Income units sold to private investors

119,169

116,511

116,511

116,511

Investments

24,352

43,523

43,701

43,879

Current Assets

 

 

245,602

191,931

165,245

138,307

Restricted deposits

3,672

3,541

3,541

3,541

Stocks

2,481

2,317

2,115

2,373

Debtors

15,324

12,758

11,648

13,065

Cash

207,660

153,029

128,967

98,680

Other

16,465

20,286

18,975

20,649

Current Liabilities

 

 

(68,941)

(71,108)

(70,273)

(71,326)

Creditors

(53,631)

(57,792)

(56,957)

(58,010)

Short term borrowings

(15,310)

(13,316)

(13,316)

(13,316)

Long Term Liabilities

 

 

(1,014,719)

(1,033,272)

(1,033,272)

(1,033,272)

Long term borrowings

(681,981)

(664,945)

(664,945)

(664,945)

Financial liability to unit holders

(129,151)

(126,704)

(126,704)

(126,704)

Other long term liabilities

(203,587)

(241,623)

(241,623)

(241,623)

Net Assets

 

 

478,542

480,761

505,655

526,370

CASH FLOW

Operating Cash Flow

 

 

102,127

124,408

112,290

124,304

Net Interest

(41,330)

(43,252)

(40,941)

(40,941)

Tax

(4,183)

(1,005)

(2,462)

(4,141)

Capex

(67,251)

(84,906)

(92,949)

(92,949)

Acquisitions/disposals

0

0

0

0

Other investing

5,623

(14,006)

0

0

Financing

(18,476)

(14,780)

0

0

Dividends

(12,278)

(15,263)

0

(16,559)

Other

0

0

0

0

Net Cash Flow

(35,768)

(48,804)

(24,062)

(30,287)

Opening cash

 

 

241,021

207,660

153,029

128,967

Other

2,407

(5,827)

0

0

Closing cash

 

 

207,660

153,029

128,967

98,680

Source: Company accounts, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by PPHE Hotel Group PPHE Hotel Groupand prepared and issued by Edison, in consideration of a fee payable by PPHE Hotel GroupPPHE Hotel Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by PPHE Hotel Group PPHE Hotel Groupand prepared and issued by Edison, in consideration of a fee payable by PPHE Hotel GroupPPHE Hotel Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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