PPHE Hotel Group — Update 24 March 2016

PPHE Hotel Group (LN: PPH)

Last close As at 24/06/2024

1,070.00

0.00 (0.00%)

Market capitalisation

455m

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Research: Consumer

PPHE Hotel Group — Update 24 March 2016

PPHE Hotel Group

Richard Finch

Written by

Richard Finch

Analyst, Consumer

Consumer

PPHE Hotel Group

At full tilt

2015 results

Travel & leisure

24 March 2016

Price

798p

Market cap

£335m

Net debt (£m) at December 2015

397.7*

*Converted at £0.73/€

Shares in issue

42.0m

Free float

23%

Code

PPH

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

25.2

19.3

53.8

Rel (local)

21.7

18.0

71.2

52-week high/low

798.0p

516.5p

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 and regional centres, predominantly in Europe.

Next event

IMS

May 2016

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

Amid heightened concern about European travel uncertainties, PPHE continues to please. Its notably upbeat outlook comment complemented 2015 EBITDA well ahead of expectations and a clear pointer to substantial hidden reserves (management’s indicative ‘fair value’ adjustment on book value properties of c £8.90 per share). There was reassurance in confirmation of momentum and justifiable enthusiasm about transformative investment (over 1,000 new rooms this year with abundant opportunity at attractive funding rates). Despite recent price strength, PPHE’s valuation is low in terms of EV/EBITDA and at a marked discount to real asset value.

Year end

Revenue (£m)

EBITDA
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

EV/EBITDA
(x)

12/14

217.0

76.1

28.6

68.9

19.0

9.3

12/15

218.7

80.1

31.8

76.1

20.0

9.2

12/16e

239.0

85.0

29.5

70.2

21.0

9.3

12/17e

278.0

98.0

41.5

98.8

22.0

7.6

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

H2 outperformance

H215 constant currency EBITDA gains of 6% and 15% in the UK and the Netherlands were all the more impressive, given a tough comparative in Q4, the company’s busiest quarter, and the Paris attacks. Inevitably, as the largest profit source, London led the way, with estimated 1% higher rate-led RevPAR allowing good profit conversion, but the Netherlands exceeded even H1 buoyancy with its yield up 16% driven by corporate demand and the success of its flagship art’otel amsterdam. Provincial UK again traded well, whereas Germany and Hungary was still mixed (H214 EBITDA was flattered by c €1m one-off tax settlement).

2017 investment payoff

Our financials are now in sterling in line with the company’s change of reporting currency from euro to reflect the importance of UK earnings. Security and geopolitical developments are necessarily a concern, with the Brussels attacks compounding uncertainty. However, management’s 2016 expectation of flat rates in London seems duly cautious and trading there has held up, albeit in the quietest quarter. 2016 will be notable for London expansion with two openings and an extension (total 890 rooms); our forecasts, detailed on page 2, reflect likely contrasting profit maturities with leverage benefits from adding to a successful unit offsetting start-up costs. We show accelerating payoff in 2017, not least from its unique ability to offer 1000 rooms in one area for events in central London.

Valuation: Much more to come

Despite recent outperformance, at 7.6x 2017e EV/EBITDA, PPHE’s valuation is still similar to the average for branded European peers. While the gap between market cap and reported NAV (638p) has closed, there is strong asset appeal in the discount to ‘fair value,’ which management estimates at €507m at end 2015. Borrowings are well within long-term facilities and a loan-to-value requirement of up to 65%.

Exhibit 1: Analysis of revenue and profit

Y/E Dec (£m)

H114

H214

FY14

H115

H215

FY15

2016e

2017e

Revenue

UK

RevPAR (£)

124

142

133

124

144

134

134

135

Change ( yoy)

Flat

+1%

+1%

Flat

+1%

Available rooms

1896

1860

1880

1880

1880

1880

1860

1898

Room revenue

42.8

48.5

91.3

42.4

49.5

91.9

91.0

93.5

Non-room revenue

19.8

21.2

41.0

20.9

22.8

43.7

44.5

45.5

London revenue

62.6

69.7

132.3

63.3

72.3

135.6

135.5

139.0

London openings*

-

-

-

-

-

-

11.0

42.0

Leeds and Nottingham

5.1

5.4

10.5

5.2

6.6

11.8

12.5

13.0

UK £m revenue

67.7

75.1

142.8

68.5

78.9

147.4

159.0

194.0

Netherlands

RevPAR (€)

90

95

93

102

111

106

111

112

Change( yoy)

+13%

+16%

+14%

+5%

+1%

Available rooms

1117

1117

1117

1117

1117

1117

1092

1117

Room revenue

18.2

19.6

37.8

20.6

22.5

43.1

44.2

45.7

Non-room revenue

7.8

8.1

15.9

7.8

7.6

15.4

15.8

16.0

Netherlands €m revenue

26.0

27.7

53.7

28.4

30.1

58.5

60.0

61.7

Exchange rate

1.22

1.27

1.25

1.38

1.39

1.38

1.30

1.30

Netherlands £m revenue

21.3

21.8

43.1

20.6

21.7

42.3

46.2

47.5

Germany and Hungary**

10.7

12.2

22.9

10.4

11.4

21.8

26.3

28.8

Owned & leased hotels

99.8

109.0

208.8

99.5

112.0

211.5

231.5

270.3

Management and holdings

3.0

5.2

8.2

2.7

4.5

7.2

7.5

7.7

TOTAL

102.8

114.2

217.0

102.2

116.5

218.7

239.0

278.0

EBITDA

  

UK

London

22.7

27.4

50.1

23.6

28.8

52.4

51.7

54.0

Margin

36%

39%

38%

37%

40%

39%

38%

39%

London openings*

-

-

-

-

-

-

2.2

11.2

Leeds and Nottingham

0.7

0.8

1.5

0.8

1.2

2.0

2.2

2.3

UK total

23.4

28.2

51.6

24.4

30.0

54.4

56.1

67.5

Netherlands

5.8

6.7

12.5

6.4

7.0

13.4

14.8

15.2

Germany and Hungary**

(1.0)

1.3***

0.3

(0.4)

0.1

(0.4)

0.3

0.8

Owned & leased hotels

28.2

36.3

64.5

30.3

37.1

67.5

71.2

83.5

Management and holdings

4.2

7.4

11.6

4.8

7.8

12.6

13.8

14.5

TOTAL

32.4

43.7

76.1

35.1

45.0

80.1

85.0

98.0

Source: Edison Investment Research. Note: *Q316 – Riverbank extension (184 rooms by year end) and Q416 – Waterloo (494 rooms) + Park Royal (212 rooms), ie 890 rooms in total (we assume 2016 average of c 270). **Including Nuremberg (177 rooms) from Q216. ***Including c £0.8m benefit of local authority tax settlement.


Exhibit 2: Financial summary

£000s

2014

2015

2016e

2017e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

217,000

218,700

239,000

278,000

EBITDA

 

 

76,100

80,100

85,000

98,000

Operating Profit (before amort and except)

 

58,700

63,100

65,000

76,500

Intangible Amortisation

(2,200)

(2,000)

(2,100)

(2,100)

Operating Profit

56,500

61,100

62,900

74,400

Net Interest

(27,800)

(29,300)

(33,800)

(33,500)

Associates

(2,300)

(2,000)

(1,700)

(1,500)

Exceptionals

7,000

(1,800)

0

0

Profit Before Tax (norm)

 

 

28,600

31,800

29,500

41,500

Profit Before Tax (FRS 3)

 

 

33,400

28,000

27,400

39,400

Tax

(200)

1,200

0

0

Profit After Tax (norm)

28,400

33,000

29,500

41,500

Profit After Tax (FRS 3)

33,200

29,200

27,400

39,400

Average Number of Shares Outstanding (m)

41.5

41.8

42.0

42.0

EPS - normalised (p)

 

 

68.9

76.1

70.2

98.8

EPS - normalised fully diluted (p)

 

 

68.9

76.1

70.2

98.8

EPS - (IFRS) (p)

 

 

80.0

69.9

65.2

93.8

Dividend per share (p)

19.0

20.0

21.0

21.0

EBITDA Margin (%)

35.1

36.6

35.6

35.3

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

27.1

28.9

27.2

27.5

BALANCE SHEET

Fixed Assets

 

 

844,400

885,600

955,000

938,000

Intangible Assets

25,400

21,900

21,000

19,000

Tangible Assets

641,500

687,500

760,000

745,000

Income units sold to private investors

129,400

125,500

124,000

124,000

Investments

48,100

50,700

50,000

50,000

Current Assets

 

 

77,700

71,700

68,800

73,800

Restricted deposits

3,200

3,200

3,200

3,200

Stocks

900

1,000

1,000

1,000

Debtors

11,800

9,100

10,000

10,000

Cash

55,800

50,600

46,800

51,800

Other

6,000

7,800

7,800

7,800

Current Liabilities

 

 

(46,100)

(59,900)

(60,500)

(60,500)

Creditors

(33,700)

(48,500)

(47,500)

(47,500)

Deposits from unit holders

0

0

0

0

Short term borrowings

(12,400)

(11,400)

(13,000)

(13,000)

Long Term Liabilities

 

 

(623,500)

(629,500)

(677,000)

(635,000)

Long term borrowings

(420,100)

(440,100)

(491,000)

(454,000)

Financial liability to unit holders

(140,500)

(136,200)

(136,000)

(136,000)

Other long term liabilities

(62,900)

(53,200)

(50,000)

(45,000)

Net Assets

 

 

252,500

267,900

286,300

316,300

CASH FLOW

Operating Cash Flow

 

 

75,600

83,200

83,000

96,000

Net Interest

(32,100)

(32,500)

(34,700)

(34,000)

Tax

(100)

(100)

0

0

Capex

(34,200)

(63,100)

(92,000)

(11,000)

Acquisitions/disposals

9,700

(3,600)

0

0

Exchange rate

10,000

6,000

0

0

Dividends

(7,100)

(8,300)

(8,600)

(9,000)

Other

3,400

(5,800)

(4,000)

0

Net Cash Flow

25,200

(24,200)

(56,300)

42,000

Opening net (debt)/cash

 

 

398,700

373,500

397,700

454,000

HP finance leases initiated

0

0

0

0

Other

0

0

0

0

Closing net (debt)/cash

 

 

373,500

397,700

454,000

412,000

Source: Company data, Edison Investment Research

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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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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