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Research: Consumer
PPHE has delivered a strong set of results for 2017. The 14% EBITDA gain was ahead of our expectations, largely owing to core resilience in London, the company’s major profit source, despite a demanding H2 comparative and notable market slowdown. The new properties (Waterloo and Park Royal) also surprised. While 2018 is transitional as management reviews deployment of its greatly enhanced flexibility (c £290m cash equivalents at end-2017), there should still be good progress thanks to recent openings and current momentum. Indeed, our new 2019 forecasts may prove cautious, given such investment potential. PPHE’s modest rating reflects neither this excess liquidity nor its asset backing (fair value c £20/share).
PPHE Hotel Group |
Fraught with opportunity |
2017 results |
Travel & leisure |
12 March 2018 |
Share price performance
Business description
Next events
Analysts
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PPHE has delivered a strong set of results for 2017. The 14% EBITDA gain was ahead of our expectations, largely owing to core resilience in London, the company's major profit source, despite a demanding H2 comparative and notable market slowdown. The new properties (Waterloo and Park Royal) also surprised. While 2018 is transitional as management reviews deployment of its greatly enhanced flexibility (c £290m cash equivalents at end-2017), there should still be good progress thanks to recent openings and current momentum. Indeed, our new 2019 forecasts may prove cautious, given such investment potential. PPHE’s modest rating reflects neither this excess liquidity nor its asset backing (fair value c £20/share).
Year end |
Revenue (£m) |
EBITDA |
PBT* |
EPS* |
DPS |
EV/EBITDA |
12/16 |
272.5 |
94.1 |
34.2 |
69.9 |
21.0** |
11.2 |
12/17 |
325.1 |
107.3 |
34.5 |
64.2 |
24.0 |
8.2 |
12/18e |
340.0 |
112.0 |
38.0 |
68.8 |
26.0 |
8.0 |
12/19e |
357.0 |
118.0 |
44.0 |
81.6 |
28.0 |
7.4 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Plus 100p special dividend
H2 bucks headwinds
As 23% higher H1 EBITDA was driven by recovery in London, a gain of 9% in the half-year to December is no less creditable, given clear slowdown in the capital and major refurbishments in the Netherlands. With core London RevPAR flat in H2 (our estimate), PPHE looks in line with the market, while its flagship Westminster Bridge again markedly outperformed its peers. However, unsurprisingly, cost pressures (eg payroll and property taxes) were to the fore, hence core London EBITDA was apparently down slightly, if by less than we forecast. Waterloo (especially) and Park Royal are stabilising rapidly with an impressive first contribution. Croatia was buoyant (local currency double-digit RevPAR growth) and the Netherlands resilient (RevPAR +3%) despite renovation works (local currency EBITDA down by a quarter).
Developments may well surprise forecasts
On stated investment plans, we are comfortable with existing 2018 forecasts, detailed on page 2, bar minimal adjustments. EBITDA growth will be driven by recent investment in London and Croatia, while H217 suggests costs may be less punitive in core London than feared (we still expect lower margin), even if our RevPAR is now curbed from +2% to flat. 2019 is less clear as management focuses on exploiting flexibility after Waterloo’s sale and leaseback and Arena’s fund-raising.
Valuation: Deals to showcase value creation
Record share price strength suggests overdue recognition of PPHE’s investment case. In particular, the market discount to fair value is highlighted by refinancing valuations that show an excess of £500m+ over book value. Expected investment activity should only accentuate this and draw attention to the company’s strong development record. At 8.0x 2018e EV/EBITDA excluding Waterloo finance lease, the rating is low against an average of c 11x 2018e for branded European peers.
Financials
Exhibit 1: Analysis of revenue and profit
Year-end December (£m) |
H116 |
H216 |
FY16 |
H117 |
H217 |
FY17 |
2018e |
2019e |
Revenue |
||||||||
UK |
||||||||
London |
||||||||
RevPAR |
£118 |
£150 |
£135 |
£130 |
£150 |
£140 |
£140 |
£140 |
Change |
-5% |
+4% |
Flat |
+10% |
Flat |
+4% |
Flat |
Flat |
Available rooms |
1,898 |
1,910* |
1,904* |
2,052* |
2052* |
2052* |
2022* |
2082 |
Room revenue |
41.0 |
52.8 |
93.8 |
48.2 |
56.3 |
104.5 |
103.5 |
106.5 |
Non-room revenue |
20.5 |
22.5 |
43.0 |
22.5 |
23.0 |
45.5 |
45.5 |
46.5 |
Existing revenue |
61.5 |
75.3 |
136.8 |
70.7 |
79.3 |
150.0 |
148.0 |
153.0 |
Waterloo + Park Royal** |
- |
0.4 |
0.4 |
9.8 |
14.2 |
24.0 |
35.0 |
39.0 |
Total London revenue |
61.5 |
75.7 |
137.2 |
80.5 |
93.5 |
174.0 |
183.0 |
192.0 |
Leeds and Nottingham |
4.9 |
6.6 |
11.5 |
5.1 |
6.7 |
11.8 |
12.0 |
12.0 |
UK |
66.4 |
82.3 |
148.7 |
85.6 |
100.2 |
185.8 |
195.0 |
204.0 |
The Netherlands (€m)*** |
29.6 |
29.4 |
59.0 |
28.9 |
25.2 |
54.1 |
56.0 |
60.5 |
Exchange rate |
1.28 |
1.17 |
1.22 |
1.16 |
1.12 |
1.14 |
1.13 |
1.13 |
The Netherlands |
23.2 |
25.1 |
48.3 |
24.9 |
22.4 |
47.3 |
50.0 |
53.5 |
Croatia (HRKm)**** |
92.1 |
333.6 |
425.7 |
125.2 |
354.6 |
479.8 |
495.0 |
515.0 |
Exchange rate |
9.63 |
8.96 |
9.17 |
8.64 |
8.40 |
8.52 |
8.40 |
8.40 |
Croatia |
9.6 |
36.8 |
46.4 |
14.5 |
41.8 |
56.3 |
59.0 |
61.5 |
Germany and Hungary***** |
10.6 |
14.5 |
25.0 |
14.4 |
16.3 |
30.7 |
31.0 |
32.5 |
Owned and leased hotels |
109.7 |
158.4 |
268.1 |
139.4 |
180.7 |
320.1 |
335.0 |
351.5 |
Management and holdings |
1.8 |
2.6 |
4,4 |
2.4 |
2.6 |
5.0 |
5.0 |
5.5 |
TOTAL |
111.6 |
160.9 |
272.5 |
141.8 |
183.3 |
325.1 |
340.0 |
357.0 |
EBITDA |
||||||||
UK |
||||||||
London |
||||||||
Existing |
20.3 |
29.4 |
49.7 |
23.4 |
29.1 |
52.5 |
50.5 |
50.5 |
Margin (%) |
33 |
39 |
36 |
33 |
36 |
35 |
34 |
33 |
Waterloo + Park Royal** |
- |
(0.5) |
(0.5) |
1.8 |
4.2 |
6.0 |
10.5 |
12.5 |
Total London EBITDA |
20.3 |
28.9 |
49.2 |
25.2 |
33.3 |
58.5 |
61.0 |
63.0 |
Leeds and Nottingham |
0.7 |
1.2 |
1.9 |
0.8 |
1.2 |
2.0 |
2.0 |
2.0 |
UK |
21.0 |
30.1 |
51.1 |
26.0 |
34.5 |
60.5 |
63.0 |
65.0 |
The Netherlands (€m)*** |
9.5 |
8.4 |
17.9 |
8.8 |
6.4 |
15.2 |
15.7 |
18.2 |
Exchange rate |
1.28 |
1.17 |
1.22 |
1.16 |
1.12 |
1.14 |
1.13 |
1.13 |
The Netherlands |
7.4 |
7.2 |
14.6 |
7.5 |
5.8 |
13.3 |
14.0 |
16.0 |
Croatia (HRKm)**** |
14.9 |
158.7 |
173.6 |
Neg. |
159.1 |
159.1 |
165.0 |
170.0 |
Exchange rate |
9.63 |
8.96 |
9.17 |
8.64 |
8.40 |
8.51 |
8.40 |
8.40 |
Croatia** |
1.5 |
17.4 |
18.9 |
Neg. |
18.7 |
18.7 |
19.5 |
20.2 |
Germany and Hungary***** |
(0.8) |
1.7 |
0.9 |
1.7 |
2.6 |
4.3 |
4.5 |
5.3 |
Owned and leased hotels |
29.2 |
56.3 |
85.5 |
35.2 |
61.6 |
96.8 |
101.0 |
106.5 |
Management and holdings |
3.3 |
5.3 |
8.6 |
4.7 |
5.8 |
10.5 |
11.0 |
11.5 |
TOTAL |
32.5 |
61.6 |
94.1 |
39.9 |
67.4 |
107.3 |
112.0 |
118.0 |
Source: Edison Investment Research. Note: *Including Riverbank extension (184 rooms) from December 2016 and rooms off at Sherlock Holmes (estimated 30 in 2017 and 60 in 2018). **December 2016 Waterloo (494 rooms and April 2017 Park Royal (212 rooms). ***Notably rooms off at Victoria Amsterdam H217 and 2018. ****From April 2016. *****Including June 2016 Nuremberg (177 rooms), July 2016 termination of Berlin lease (155 rooms) and rooms off at art’otel berlin kudamm (estimated 30 in 2018).
Exhibit 2: Financial summary
£000s |
2016 |
2017 |
2018e |
2019e |
|||
Year-end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
|||
PROFIT & LOSS |
|||||||
Revenue |
|
|
272,500 |
325,100 |
340,000 |
357,000 |
|
EBITDA |
|
|
94,100 |
107,300 |
112,000 |
118,000 |
|
Operating Profit (before amort and except) |
|
70,900 |
75,400 |
80,000 |
86,000 |
||
Intangible Amortisation |
(2,500) |
(2,400) |
(2,500) |
(2,500) |
|||
Operating Profit |
68,400 |
73,000 |
77,500 |
83,500 |
|||
Net Interest |
(34,900) |
(40,600) |
(42,000) |
(42,000) |
|||
Associates |
(1,800) |
(300) |
0 |
0 |
|||
Exceptionals |
6,500 |
(400) |
0 |
0 |
|||
Profit Before Tax (norm) |
|
|
34,200 |
34,500 |
38,000 |
44,000 |
|
Profit Before Tax (FRS 3) |
|
|
38,200 |
31,700 |
35,500 |
41,500 |
|
Tax |
(100) |
(1,700) |
(2,000) |
(2,500) |
|||
Profit After Tax (norm) |
34,100 |
32,800 |
36,000 |
41,500 |
|||
Profit After Tax (FRS 3) |
38,100 |
30,000 |
33,500 |
39,000 |
|||
Average Number of Shares Outstanding (m) |
42.2 |
42.2 |
42.3 |
42.3 |
|||
EPS - normalised (p) |
|
|
69.9 |
64.2 |
68.8 |
81.6 |
|
EPS - normalised fully diluted (p) |
|
|
69.9 |
64.2 |
68.8 |
81.6 |
|
EPS - (IFRS) (p) |
|
|
83.2 |
57.6 |
62.6 |
74.9 |
|
Dividend per share (p) |
21.0 |
24.0 |
26.0 |
28.0 |
|||
EBITDA Margin (%) |
34.5 |
33.0 |
32.5 |
33.1 |
|||
Operating Margin (before GW and except.) (%) |
26.0 |
23.2 |
23.2 |
24.1 |
|||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
1,122,300 |
1,220,200 |
1,223,000 |
1,206,000 |
|
Intangible Assets |
25,200 |
23,600 |
23,000 |
23,000 |
|||
Tangible Assets |
947,200 |
1,037,200 |
1,040,000 |
1,025,000 |
|||
Income units sold to private investors |
122,500 |
121,200 |
118,000 |
115,000 |
|||
Investments |
27,400 |
38,200 |
42,000 |
43,000 |
|||
Current Assets |
|
|
195,600 |
319,800 |
278,000 |
303,000 |
|
Restricted deposits |
25,500 |
25,500 |
25,000 |
25,000 |
|||
Stocks |
2,400 |
2,700 |
3,200 |
3,200 |
|||
Debtors |
12,600 |
13,400 |
13,800 |
13,800 |
|||
Cash |
144,700 |
265,700 |
222,000 |
237,000 |
|||
Other |
10,400 |
12,500 |
14,000 |
24,000 |
|||
Current Liabilities |
|
|
(173,000) |
(93,100) |
(81,000) |
(80,000) |
|
Creditors |
(54,700) |
(60,200) |
(61,000) |
(60,000) |
|||
Deposits from unit holders |
0 |
0 |
0 |
0 |
|||
Short term borrowings |
(118,300) |
(32,900) |
(20,000) |
(20,000) |
|||
Long Term Liabilities |
|
|
(814,700) |
(1,006,000) |
(968,000) |
(958,000) |
|
Long term borrowings |
(642,100) |
(666,900) |
(650,000) |
(640,000) |
|||
Financial liability to unit holders |
(134,000) |
(131,600) |
(128,000) |
(128,000) |
|||
Other long term liabilities |
(38,600) |
(207,500) |
(190,000) |
(190,000) |
|||
Net Assets |
|
|
330,200 |
440,900 |
452,000 |
471,000 |
|
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
79,500 |
114,000 |
112,000 |
118,000 |
|
Net Interest |
(37,300) |
(43,100) |
(43,000) |
(43,000) |
|||
Tax |
0 |
(700) |
(2,400) |
(3,000) |
|||
Capex |
(87,300) |
(107,000) |
(35,000) |
(35,000) |
|||
Acquisitions/disposals |
(64,300) |
152,400 |
(35,000) |
0 |
|||
Exchange rate |
(26,700) |
(9,000) |
(1,000) |
0 |
|||
Dividends |
(50,600) |
(9,300) |
(10,500) |
(11,400) |
|||
Other |
(500) |
79,500 |
0 |
(600) |
|||
Net Cash Flow |
(187,200) |
176,800 |
(14,900) |
25,000 |
|||
Opening net debt/(cash) |
|
|
397,700 |
584,900 |
408,100 |
423,000 |
|
HP finance leases initiated |
0 |
0 |
0 |
0 |
|||
Other |
0 |
0 |
0 |
0 |
|||
Closing net debt/(cash) |
|
|
584,900 |
408,100 |
423,000 |
398,000 |
|
Source: PPHE Hotel Group accounts, Edison Investment Research
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