PPHE Hotel Group — Going places

PPHE Hotel Group (LN: PPH)

Last close As at 24/06/2024

1,070.00

0.00 (0.00%)

Market capitalisation

455m

More on this equity

Research: Consumer

PPHE Hotel Group — Going places

PPHE has arguably trumped its strong H117 results by highlighting its “unprecedented financial position,” which provides exciting scope for management with an enviable development record. Excess liquidity is substantial (we estimate £250+m cash after Waterloo sale backed by a valuation surplus) and its deployment is actively under review. Meanwhile impressive +23% H117 EBITDA despite headwinds and a positive outlook have led us to raise forecasts, if marginally. Heartland London recovered well, with key openings soon making their mark. A meagre rating belies PPHE’s proven profit delivery and asset backing (fair value c £18/share).

Richard Finch

Written by

Richard Finch

Analyst, Consumer

Consumer

PPHE Hotel Group

Going places

Interim results

Travel & leisure

20 September 2017

Price

1,075p

Market cap

£455m

Net debt (£m) at 30 June 2017

559.0

Shares in issue

42.3m

Free float

23%

Code

PPH

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

19.1

31.1

52.5

Rel (local)

19.8

35.0

41.9

52-week high/low

1075.0p

675.0p

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

IMS

November 2017

Analysts

Richard Finch

+44 (0)20 3077 5700

Paul Hickman

+44 (0)20 3681 2501

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

PPHE has arguably trumped its strong H117 results by highlighting its “unprecedented financial position,” which provides exciting scope for management with an enviable development record. Excess liquidity is substantial (we estimate £250+m cash after Waterloo sale backed by a valuation surplus) and its deployment is actively under review. Meanwhile impressive +23% H117 EBITDA despite headwinds and a positive outlook have led us to raise forecasts, if marginally. Heartland London recovered well, with key openings soon making their mark. A meagre rating belies PPHE’s proven profit delivery and asset backing (fair value c £18/share).

Year end

Revenue (£m)

EBITDA
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

EV/EBITDA
(x)

12/15

218.7

80.1

31.8

76.1

20.0

10.6

12/16

272.5

94.1

34.2

73.9

21.0**

11.1

12/17e

326.0

106.0

33.5

65.9

22.0

9.7

12/18e

350.0

113.0

40.0

78.5

23.0

8.8

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Plus 100p special dividend

H117: Busy and successful

The half saw strong underlying growth across the board (double-digit but for renovation impact in otherwise buoyant Netherlands). Admittedly, London, PPHE’s main profit centre, was flattered by a weak comparative after the Paris attacks (core London RevPAR up c 10% against down 5% in H116). By contrast, Croatia flourished with +19% like-for-like and sterling revenue up by a third in June, the only high-season month in the period. EBITDA progress was more uneven as core London (+c 15%) and Netherlands (local currency -8%) were curbed, respectively, by cost pressures (payroll and business rates) and renovation at the flagship Victoria Amsterdam. Whereas Croatia was down owing to first inclusion of loss-making Q1, Germany and Hungary EBITDA was boosted by lower rent after Berlin deals.

Holding firm

Our unchanged, broadly positive assumptions for this year and next allow a minor upgrade to forecasts, ie revenue and EBITDA, respectively, 3% and £4m in 2017 and 5% and £3m in 2018. As detailed on page 2, in London we see slower growth on more normal comparatives and persistent cost pressures (EBITDA margin down), sustained buoyancy in Croatia, renovation impact in the Netherlands and a positive first contribution from PP Waterloo and Park Royal, now fully operational. Despite caution ahead of its key trading period and uncertain times, we are buoyed by general momentum and payoff from recent transformative investments.

Valuation: Much more to come

Current record share price strength (up 28% since end July) looks at last to be starting to recognise PPHE’s investment case. Recent revaluation to include London openings accentuated the discount to real value (adjustment of c 1,340p/share to reported NAV, pre-Waterloo sale). At 8.8x 2018e EV/EBITDA, the rating is low against an average of c 10x 2018e for branded European peers.

Financials

Exhibit 1: Analysis of revenue and profit

Year-end December (£m)

H116

H216

FY16

H117

H217e

FY17e

FY18e

Revenue

UK

London

RevPAR

£118

£150

£135

£130

£154

£142

£145

Change

-5%

+4%

Flat

+10%

+3%

+5%

+3%

Available rooms

1,898

1,910*

1,904*

2,052*

2,052*

2,052*

2,082

Room revenue

41.0

52.8

93.8

48.2

58.1

106.3

110.0

Non-room revenue

20.5

22.5

43.0

22.5

23.2

45.7

46.5

Existing revenue

61.5

75.3

136.8

70.7

81.3

152.0

156.5

Waterloo + Park Royal**

-

0.4

0.4

9.8

14.2

24.0

33.5

Total London revenue

61.5

75.7

137.2

80.5

95.5

176.0

190.0

Leeds and Nottingham

4.9

6.6

11.5

5.1

6.9

12.0

12.0

UK

66.4

82.3

148.7

85.6

102.4

188.0

202.0

Netherlands (€m)

29.6

29.4

59.0

28.9

24.1***

53.0***

56.0***

Exchange rate

1.28

1.17

1.22

1.16

1.10

1.13

1.10

Netherlands

23.2

25.1

48.3

24.9

22.1

47.0

51.0

Croatia (HRKm)

92.1

331.0

423.1

125.2

344.8

470.0

486.0

Exchange rate

9.63

8.96

9.17

8.64

8.15

8.40

8.15

Croatia**

9.6

36.5

46.1

14.5

41.5

56.0

60.0

Germany and Hungary***

10.6

14.5

25.0

14.4

15.6

30.0

32.0

Owned & leased hotels

109.7

158.4

268.1

139.4

181.6

321.0

345.0

Management and holdings

1.8

2.6

4,4

2.4

2.6

5.0

5.0

TOTAL

111.6

160.9

272.5

141.8

184.2

326.0

350.0

EBITDA

UK

London

Existing

20.3

29.4

49.7

23.4

28.4

51.8

51.5

Margin (%)

33

39

36

33

35

34

33

Waterloo + Park Royal*

-

(0.5)

(0.5)

1.8

3.4

5.2

9.0

Total London EBITDA

20.3

28.9

49.2

25.2

31.8

57.0

60.5

Leeds and Nottingham

0.7

1.2

1.9

0.8

1.2

2.0

2.0

UK

21.0

30.1

51.1

26.0

33.0

59.0

62.5

Netherlands (€m)

9.5

8.4

17.9

8.8

6.0

14.8

15.7

Exchange rate

1.28

1.17

1.22

1.16

1.10

1.13

1.10

Netherlands

7.4

7.2

14.6

7.5

5.5

13.0

14.3

Croatia (HRKm)

14.9

139.0

153.9

Neg.

152.0

152.0

160.0

Exchange rate

9.63

8.96

9.17

8.64

8.15

8.40

8.15

Croatia****

1.5

15.3

16.8

Neg.

18.0

18.0

19.5

Germany and Hungary*****

(0.8)

1.7

0.9

1.7

2.3

4.0

4.7

Owned & leased hotels

29.2

54.2

83.4

35.2

58.8

94.0

101.0

Management and holdings

3.3

7.4

10.7

4.7

7.3

12.0

12.0

TOTAL

32.5

61.6

94.1

39.9

66.1

106.0

113.0

Source: Edison Investment Research. Note: *Including Riverbank extension (184 rooms) from 12.16 and rooms off at Sherlock Holmes (est. 30). **December 2016 Waterloo 494 rooms + April 2017 Park Royal 212 rooms (fully operational by Q317). ***Rooms off in Amsterdam (notably Victoria H217 and H118). ****From April 2016. *****Including Nuremberg 177 rooms from June 2016.

H117: Business as usual

In the face of exceptional security challenges in its London heartland, PPHE showed remarkable resilience and focus to combine decent financials with active, uninterrupted implementation of a busy development schedule. This included a material addition (over 700 rooms) to the London portfolio (now c 3,150) with the openings of Park Plaza Waterloo and Park Royal (fully operational by period end) and participation in a transformative €106m fund-raising by its Croatian subsidiary, Arena Hospitality. There was also minor adjustment to the estate in Germany (acquisition of two Berlin properties previously under operating leases) and the Netherlands (sale of part of Park Plaza Vondelpark Amsterdam). Last but not least, at the very end of the half, the company entered into a sale and leaseback agreement for Waterloo.

Strength in depth

Despite striking increases in H117 headline revenue and EBITDA of 27% and 23%, as shown in Exhibit 1, a lot of moving parts makes it incumbent to identify underlying performance. Therefore we begin by adjusting to omit recent openings in London and Germany, to include Croatia’s pre-acquisition Q116 and to reflect the new freehold position of two Berlin hotels. These temper respective like-for-like advances to 16% and 21%. We make further revision for currency in view of sterling depreciation. Adjusting for this translation boost reduces revenue and EBITDA gains to 11% and 18%. This double-digit growth is still impressive and even more so as broadly spread, ie RevPAR up c 10% and 18% in London and Germany and Hungary, respectively, revenue +19% in Croatia and RevPAR up 4% in the Netherlands despite a strong comparative and renovation.

Exhibit 2: Analysis of underlying H117 revenue and EBITDA

€m

Revenue

H116

H117

EBITDA

H116

H117

Reported

111.6

141.9

32.5

39.9

Change

+27%

+23%

Like-for-like

111.9

129.6

31.5

38.0

Change

+16%

+21%

Currency boost*

(5.0)

(0.8)

Underlying

124.6

37.2

Change

+11%

+18%

Source: Edison Investment Research. Note: *H117 €1.16/£ (H116: €1.28/£); Croatian kuna – H117 HRK8.64/£ (H116: HRK9.63/£).

It barely needs pointing out that London’s aforementioned apparent bumper performance should be seen against a half subdued by the November 2015 attacks in Paris when a 5% reduction in RevPAR was in line with market reports for the capital – see Exhibit 3. Moreover, the company’s 10% yield gain in the period was no more than that of the market. However, it is much to the credit of London and PPHE that such positive recovery was achieved in the face of further major attacks (Westminster Bridge and London Bridge), especially given their proximity to the company’s South Bank focus. Pound devaluation following the Brexit vote has provided a signal boost to tourism and thus the hotel sector. According to VisitBritain, visits to the UK were up 9% in H117. While arrivals from the EU (two-thirds of visits) saw a rise of 4%, there was notable demand from North America (up by a quarter) and the rest of the world (+18%).

Exhibit 3: Changes in RevPAR in PPHE’s key London market

Source: STR

While London may thus have been flattered in H1, the reverse applied to Croatia as its off-season Q1 was included for the first time and risks obscuring exceptional buoyancy (revenue +35%) in June, the first high-season month of the year. If Q116 is included for comparability, the increase in like-for-like local currency revenue was almost 20%. Q217 alone was up 25%, albeit boosted by a late Easter. As shown below, such progress reflects a step-change in the appeal of Croatia as a tourist destination in addition to payoff from the company’s significant pre-season investment.

Exhibit 4: Annual growth in Croatia tourism (peak trading June-Sept foreign tourist nights)

Source: Croatian Bureau of Statistics

The performance in the Netherlands is similarly deserving of explanation as a reported decline in revenue, however minor (2%), is at odds with a business that has seen consistent growth. Fortunately this is simply attributable to renovation at the flagship Victoria Amsterdam and reduction in size of Vondelpark Amsterdam (we have assumed 50 rooms off or c 4% of total inventory). 4% RevPAR gain was respectable against a buoyant H116 (5% ahead).

Germany and Hungary were also somewhat out of kilter, with RevPAR up an exceptional 18% l-f-l in the period. This reflected recovery from a soft first half in 2016, depressed by renovations and market weakness.

Like-for-like notwithstanding, first signs from Waterloo and Park Royal openings were encouraging and Nuremberg, which opened in H116, looks to be maturing well. Waterloo in particular has filled up quickly, capitalising on the company’s unique South Bank concentration and general market recovery. Park Royal, whose launch was delayed into Q2, has more the trading characteristics of a UK provincial hotel.

Challenging profit conversion

Although like-for-like EBITDA improvement of 18%, as discussed above, is per se no mean feat, such all-round buoyancy might have been expected to deliver yet higher returns by a business with such operational gearing. Total RevPAR gain was, after all, 18% l-f-l and room rate-led, albeit currency boosted.

However, the UK, much the company’s principal profit centre, saw accelerating pressure on labour supply and operating costs as well as increased security expenses following recent attacks. In addition to a persistent hike in business rates, sterling weakness accounted for a rise in imported food costs and a shortage of qualified staff as remittances by migrant workers were no longer worth so much when sent to their families back home. Specifically, to show the scale of the challenge, management has commented on a shortage of 90 housekeeping personnel out of a team of 400, resulting in their payroll costs now somewhat ahead of national minimum wage rate. For the core London hotels, we have therefore assumed for H117 only maintained EBITDA margin despite double-digit top-line growth (EBITDA is disclosed only at country level).

By contrast, Croatia did indeed convert successfully. On a like-for-like basis, ie including pre-acquisition Q116, a 19% rise (HRK20m) in local currency revenue led to the elimination of HRK8m EBITDA loss.

The shortfall in Netherlands EBITDA was due simply to rooms off and associated disruption from renovation, as mentioned above. 2% lower local currency revenue resulted in an 8% decline in EBITDA, ie margin down from 32% to 30%.

Optimism maintained – minor upgrades in order

The outlook for the rest of this year and 2018 remains one of sustained underlying growth in all PPHE’s operating regions. Most significantly, London may be expected to return to more normal levels, say +2-3% RevPAR. Geopolitical events, eg security and Brexit uncertainty, are necessarily a concern but the hotel market has shown admirable resilience and is a beneficiary of increased tourism as a result of sterling weakness. A greater measurable worry is room supply, which is set to rise above its long-term trend over the next year. Already market occupancy has fallen in each of the last three months, according to STR, even though demand continues to go up. Such was the impact in August of a spike in supply (4% against 2.7% in 2016 and 2.2% the year before) that the month’s RevPAR was merely flat. In the light of this more modest revenue growth and persisting cost issues (labour and imported inflation) we expect further EBITDA margin erosion in London (excluding openings) in both H2 and next year.

Similar RevPAR growth to the UK levels is on the cards in the Netherlands but the renovation impact will intensify with up to 20% of inventory off; we have assumed 200 rooms off in the current half and 100 in 2018, predominantly at the 299-room Victoria Amsterdam. As a result, we forecast local currency H217 EBITDA down by almost 30% but recovering slightly next year on initial investment payoff.

Croatia is arguably the joker in the pack as our +3% RevPAR forecast for both periods seems cautious, given the company’s flourishing June, enthusiasm about summer trading and the Croatian Bureau of Statistics’ confirmation of market strength in July (foreign visitor nights up 11%, giving cumulative June-July +18%, as shown in Exhibit 3). We are also encouraged by likely returns from increased investment and extension of business, eg music festivals and sporting competitions, in the resort hotels’ shoulder months.

We remain positive about the London openings, which achieved a better than expected 18% EBITDA margin in their initial half.

Given broadly unchanged assumptions, adjustments to forecasts for both periods are minor but positive at the revenue and EBITDA level, ie respectively 3% and £4m in 2017 and 5% and £3m in 2018.

The reduction in our PBT forecasts (£2.5m this year and £4m next) is due to higher depreciation than we had expected (likely up 35% this year, driven by the London openings) and finance costs inflated by Waterloo rent after the sale and leaseback. In any case EV/EBITDA remains our preferred valuation metric.

“Unprecedented financial position” shows PPHE on front foot

The June balance sheet confirmed finances to be in good shape. While net debt remains well within long-term bank facilities (average term to maturity of eight years), of particular note was record cash of c £190m, of which c £100m was in Arena after its public offering. To this should be added c £80m from the subsequent Waterloo sale and leaseback.

Last year the company recognised that after its extensive refinancings it had excess liquidity, so paid a special dividend of 100p, ie c £42m. By contrast, a repeat has now been formally deferred for 12 months.

It was thus no surprise that management has confirmed that it is looking actively to make investments, while also prepared to bide its time for opportunities when the market subsides. The current focus is both single London properties and UK portfolios. Office conversions on the Waterloo model (previously Hercules House Government offices) are also being examined.

Given management’s successful development record, this is particularly exciting. Indeed, the investment case of Waterloo alone is persuasive. An independent valuation of £250m revealed a doubling of value in just four years. Otherwise we could point to similar appreciation of PPHE’s 52% investment in Arena, valued at €161m at end August against a total cost of €79m.

We are also enthusiastic about potential returns from investment by Arena in both Croatia and central Europe.

Exhibit 5: Financial summary

£000s

2015

2016

2017e

2018e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

 

218,700

272,500

326,000

350,000

EBITDA

 

 

 

80,100

94,100

106,000

113,000

Operating Profit (before amort and except)

 

 

63,100

70,900

74,500

81,000

Intangible Amortisation

(2,000)

(2,500)

(2,500)

(2,500)

Operating Profit

61,100

68,400

72,000

78,500

Net Interest

(29,300)

(34,900)

(40,900)

(41,000)

Associates

(2,000)

(1,800)

(100)

0

Exceptionals

(1,800)

6,500

0

0

Profit Before Tax (norm)

 

 

 

31,800

34,200

33,500

40,000

Profit Before Tax (FRS 3)

 

 

 

28,000

38,200

31,000

37,500

Tax

1,200

(100)

(1,500)

(2,000)

Profit After Tax (norm)

33,000

34,100

32,000

38,000

Profit After Tax (FRS 3)

29,200

38,100

29,500

35,500

Average Number of Shares Outstanding (m)

41.8

42.2

42.2

42.3

EPS - normalised (p)

 

 

 

76.1

73.9

65.9

78.5

EPS - normalised fully diluted (p)

 

 

 

76.1

73.9

65.9

78.5

EPS - (IFRS) (p)

 

 

 

69.9

83.2

60.4

72.6

Dividend per share (p)

20.0

21.0

22.0

23.0

EBITDA Margin (%)

36.6

34.5

32.5

32.3

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

28.9

26.0

22.9

23.1

BALANCE SHEET

Fixed Assets

 

 

 

885,600

1,122,300

1,201,000

1,171,000

Intangible Assets

21,900

25,200

24,000

23,000

Tangible Assets

687,500

947,200

1,020,000

990,000

Income units sold to private investors

125,500

122,500

120,000

118,000

Investments

50,700

27,400

37,000

40,000

Current Assets

 

 

 

71,700

195,600

236,000

250,000

Restricted deposits

3,200

25,500

25,000

25,000

Stocks

1,000

2,400

3,000

3,200

Debtors

9,100

12,600

13,000

13,800

Cash

50,600

144,700

183,000

184,000

Other

7,800

10,400

12,000

24,000

Current Liabilities

 

 

 

(59,900)

(173,000)

(175,700)

(76,700)

Creditors

(48,500)

(54,700)

(55,700)

(56,700)

Deposits from unit holders

0

0

0

0

Short term borrowings

(11,400)

(118,300)

(120,000)

(20,000)

Long Term Liabilities

 

 

 

(629,500)

(814,700)

(835,000)

(887,000)

Long term borrowings

(440,100)

(642,100)

(662,000)

(731,000)

Financial liability to unit holders

(136,200)

(134,000)

(132,000)

(128,000)

Other long term liabilities

(53,200)

(38,600)

(41,000)

(28,000)

Net Assets

 

 

 

267,900

330,200

426,300

457,300

CASH FLOW

Operating Cash Flow

 

 

 

83,200

79,500

106,000

113,000

Net Interest

(32,500)

(37,300)

(39,800)

(39,500)

Tax

(100)

0

(1,000)

(2,000)

Capex

(63,100)

(87,300)

(45,000)

(30,000)

Acquisitions/disposals

(3,600)

(64,300)

(65,000)

0

Exchange rate

6,000

(26,700)

(15,000)

0

Dividends

(8,300)

(50,600)

(9,300)

(9,500)

Other

(5,800)

(500)

80,000

0

Net Cash Flow

(24,200)

(187,200)

10,900

32,000

Opening net debt/(cash)

 

 

 

373,500

397,700

584,900

574,000

HP finance leases initiated

0

0

0

0

Other

0

0

0

0

Closing net debt/(cash)

 

 

 

397,700

584,900

574,000

542,000

Source: PPHE accounts, Edison Investment Research

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Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by PPHE Hotel Group and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by PPHE Hotel Group and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Research: Financials

Nürnberger Beteiligungs — Low rating, but industry uncertainties persist

Nürnberger’s results this year are riding out the challenging environment; net income rose 63% to €42m and guidance for the full year was upped from €40m to €60m. Against this, the dominant life insurance business faces limited medium-term visibility. At 1.02x conservative HGB book value per share and a dividend yield of 4.6%, the rating is undemanding.

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