PPHE Hotel Group — Update 13 September 2016

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 — Update 13 September 2016

PPHE Hotel Group

Richard Finch

Written by

Richard Finch

Analyst, Consumer

Consumer

PPHE Hotel Group

Keeping busy

Interim results

Travel & leisure

13 September 2016

Price

680p

Market cap

£287m

Net debt (£m) at June 2016

531.6

Shares in issue

42.2m

Free float

46.1%

Code

PPH

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

13.4

17.3

0.7

Rel (local)

11

24

8.6

52-week high/low

849p

598.5p

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

November 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

Higher than expected costs and delayed openings suggest that our EBITDA forecasts may now be met only thanks to consolidation of PPHE’s Croatian resort businesses. However, despite continued headwinds there is reassurance that assumed like-for-like EBITDA shortfall, notably in London, is partly related to current transformative investment (consolidated rooms to rise this year by c 70%), with full pay-off from 2018. Robust finances are evident in the recent special dividend of 100p/share and successful property refinancings, which underline substantial hidden reserves (‘fair value’ adjustment of c 1,000p/share to reported 803p NAV).

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

8.7

12/15

218.7

80.1

31.8

76.1

20.0

8.6

12/16e

266.0

85.0

23.5

51.1

20.0**

10.2

12/17e

318.0

98.0

28.5

63.3

21.0

8.7

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Plus 100p special dividend paid Aug 2016.

H116: A lot of moving parts

The half year to 30 June saw contrasting fortunes for PPHE’s two main profit sources, London and the Netherlands, as well as consolidation from April of operations in Croatia after buying in its joint venture. There were also significant corporate transaction costs, which we assume to have accounted for much of the overall £2.6m (7%) decline in EBITDA. While London trading was predictably subdued (-5% RevPAR was in line with market reports for the capital), the focus on room rate (+1%) could not prevent cost pressures (eg selling and payroll) driving UK EBITDA down 14%. Netherlands again stole the show with RevPAR up 5% on a demanding comparative and EBITDA up 16%, albeit currency-boosted. Croatia’s initial EBITDA contribution was understandably minor as Q2 is its shoulder period.

EBITDA forecasts maintained but change of mix

The changes to our forecasts, detailed on page 2, reflect the Croatia deal, newly-announced delay in London openings and our fresh caution about cost control. For 2016, while we assume H2 stabilisation in London (July’s sharp market pick-up was exceptional), EBITDA margin reduction on a par with H1 looks reasonable. The delay to late Q4 in opening two hotels and the Riverbank extension brings pre-opening costs without associated revenue. However, this EBITDA shortfall should be made good by Croatia’s seasonally stronger half. For next year, the profit driver remains the new c 900 rooms in London since costs may be expected to remain an issue and first inclusion of loss-making Q1 will depress Croatia.

Valuation: London openings to spark new interest

Despite disappointment that PPHE’s longstanding prized assets in London may have gone off the boil, we believe this to be temporary and there should be material payoff from expansion. At 8.7x 2017e EV/EBITDA, PPHE’s valuation is on a par with European hotel peers and at a discount to reported NAV, let alone fair value.

Exhibit 1: Analysis of revenue and profit

Y/E December (£m)

H115

H215

FY15

H116

H216e

FY16e

FY17e

Revenue

UK

London

RevPAR

£124

£144

£134

£118

£144

£131

£132

Change

Flat

+1%

+1%

-5%

Flat

-2%

+1%

Available rooms

1880

1880

1880

1898

1898

1898

1898

Room revenue

42.4

49.5

91.9

41.0

50.0

91.0

91.5

Non-room revenue

20.9

22.8

43.7

20.5

22.5

43.0

43.0

Existing revenue

63.3

72.3

135.6

61.5

72.5

134.0

134.5

Waterloo + Park Royal + Riverbank extension*

-

-

-

-

2.0

2.0

47.0

Total London revenue

63.3

72.3

135.6

61.5

74.5

136.0

181.5

Leeds and Nottingham

5.2

6.6

11.8

4.9

6.6

11.5

11.5

UK

68.5

78.9

147.4

66.4

81.1

147.5

193.0

Netherlands (€m)

28.4

30.1

58.5

29.6

30.4

60.0

60.6

Exchange rate

1.38

1.39

1.38

1.28

1.18

1.23

1.18

Netherlands

20.6

21.7

42.3

23.2

25.8

49.0

51.5

Croatia (HRKm)

-

-

-

92.1

287.9

380.0

390.0

Exchange rate

-

-

-

9.63

8.86

9.12

8.90

Croatia**

-

-

-

9.6

32.4

42.0

44.0

Germany and Hungary***

10.4

11.4

21.8

10.6

12.4

23.0

24.5

Owned & leased hotels

99.5

112.0

211.5

109.7

151.8

261.5

313.0

Management and holdings

2.7

4.5

7.2

1.8

2.7

4.5

5.0

TOTAL

103.2

116.5

218.7

111.6

154.4

266.0

318.0

EBITDA

UK

London

Existing

23.6

28.8

52.4

20.3

26.8

47.1

47.1

Margin (%)

37

40

39

33

37

35

33

Waterloo + Park Royal + Riverbank extension*

-

-

-

-

(3.0)

(3.0)

9.5

Total London EBITDA

23.6

28.8

52.4

20.3

23.8

44.1

56.6

Leeds and Nottingham

0.8

1.2

2.0

0.7

1.2

1.9

1.9

UK

24.4

30.0

54.4

21.0

25.0

46.0

58.5

Netherlands (€m)

8.8

9.8

18.6

9.5

9.7

19.2

19.4

Exchange rate

1.38

1.39

1.38

1.28

1.18

1.23

1.18

Netherlands

6.4

7.0

13.4

7.4

8.1

15.5

16.4

Croatia (HRKm)

-

-

-

14.9

112.1

127.0

116.0

Exchange rate

-

-

-

9.63

8.86

9.12

8.90

Croatia**

-

-

-

1.5

12.5

14.0

13.0

Germany and Hungary**

(0.4)

0.1

(0.4)

(0.8)

0.3

(0.5)

0.1

Owned & leased hotels

30.3

37.1

67.5

29.2

45.8

75.0

88.0

Management and holdings

4.8

7.8

12.6

3.3

6.7

10.0

10.0

TOTAL

35.1

45.0

80.1

32.5

52.5

85.0

98.0

Source: Edison Investment Research. Note: *Late Q416: Waterloo 494 rooms, Park Royal 212 rooms and Riverbank extension 184 rooms. **From April 2016. ***Including Nuremberg 177 rooms from June 2016.


Exhibit 2: Financial summary

£000s

2014

2015

2016e

2017e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

217,000

218,700

266,000

318,000

EBITDA

 

 

76,100

80,100

85,000

98,000

Operating Profit (before amort and except)

 

58,700

63,100

61,000

70,000

Intangible Amortisation

(2,200)

(2,000)

(2,100)

(2,100)

Operating Profit

56,500

61,100

58,900

67,900

Net Interest

(27,800)

(29,300)

(36,000)

(41,500)

Associates

(2,300)

(2,000)

(1,500)

0

Exceptionals

7,000

(1,800)

3,300

0

Profit Before Tax (norm)

 

 

28,600

31,800

23,500

28,500

Profit Before Tax (FRS 3)

 

 

33,400

28,000

24,700

26,400

Tax

(200)

1,200

0

0

Profit After Tax (norm)

28,400

33,000

23,500

28,500

Profit After Tax (FRS 3)

33,200

29,200

24,700

26,400

Average Number of Shares Outstanding (m)

41.5

41.8

42.1

42.2

EPS - normalised (p)

 

 

68.9

76.1

51.1

63.3

EPS - normalised fully diluted (p)

 

 

68.9

76.1

51.1

63.3

EPS - (IFRS) (p)

 

 

80.0

69.9

53.9

58.3

Dividend per share (p)

19.0

20.0

20.0

21.0

EBITDA Margin (%)

35.1

36.6

32.0

30.8

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

27.1

28.9

22.9

22.0

BALANCE SHEET

Fixed Assets

 

 

844,400

885,600

1,139,000

1,117,000

Intangible Assets

25,400

21,900

25,000

23,000

Tangible Assets

641,500

687,500

940,000

917,000

Income units sold to private investors

129,400

125,500

124,000

122,000

Investments

48,100

50,700

50,000

55,000

Current Assets

 

 

77,700

71,700

182,000

192,000

Restricted deposits

3,200

3,200

10,000

10,000

Stocks

900

1,000

2,000

2,000

Debtors

11,800

9,100

15,000

15,000

Cash

55,800

50,600

140,000

145,000

Other

6,000

7,800

15,000

20,000

Current Liabilities

 

 

(46,100)

(59,900)

(109,000)

(91,000)

Creditors

(33,700)

(48,500)

(80,000)

(80,000)

Deposits from unit holders

0

0

0

0

Short term borrowings

(12,400)

(11,400)

(29,000)

(11,000)

Long Term Liabilities

 

 

(623,500)

(629,500)

(867,000)

(858,000)

Long term borrowings

(420,100)

(440,100)

(700,000)

(700,000)

Financial liability to unit holders

(140,500)

(136,200)

(132,000)

(128,000)

Other long term liabilities

(62,900)

(53,200)

(35,000)

(30,000)

Net Assets

 

 

252,500

267,900

345,000

360,000

CASH FLOW

Operating Cash Flow

 

 

75,600

83,200

83,600

98,000

Net Interest

(32,100)

(32,500)

(37,800)

(42,200)

Tax

(100)

(100)

(100)

(100)

Capex

(34,200)

(63,100)

(90,000)

(25,000)

Acquisitions/disposals

9,700

(3,600)

(63,000)

0

Exchange rate

10,000

6,000

(23,000)

0

Dividends

(7,100)

(8,300)

(51,000)

(8,700)

Other

3,400

(5,800)

0

0

Net Cash Flow

25,200

(24,200)

(181,300)

22,000

Opening net (debt)/cash

 

 

398,700

373,500

397,700

579,000

HP finance leases initiated

0

0

0

0

Other

0

0

0

0

Closing net (debt)/cash

 

 

373,500

397,700

579,000

557,000

Source: Edison Investment Research, company accounts

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. 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 2016 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 2016. “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

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

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. 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 2016 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 2016. “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

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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