PPHE Hotel Group — Up for the challenge

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 — Up for the challenge

PPHE has delivered on a confident post-close update with 2016 EBITDA well above expectations. H2 recovery in London despite headwinds and sustained buoyancy in newly consolidated Croatia made up for H1 disappointment, which is all the more encouraging as these are likely to be the company’s medium-term profit drivers. Valuation is low in terms of EV/EBITDA and at a glaring discount to real asset value (‘fair value’ adjustment of c 1,000p/share to reported 782p NAV will only increase on inclusion of new high-value estate).

Richard Finch

Written by

Richard Finch

Analyst, Consumer

Consumer

PPHE Hotel Group

Up for the challenge

2016 results

Travel & leisure

9 March 2017

Price

817.00p

Market cap

£345m

Net debt (£m) at December 2016

584.9

Shares in issue

42.2m

Free float

23%

Code

PPH

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

8.9

18.8

28.7

Rel (local)

6.8

12.0

8.4

52-week high/low

849p

649p

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

May 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 delivered on a confident post-close update with 2016 EBITDA well above expectations. H2 recovery in London despite headwinds and sustained buoyancy in newly consolidated Croatia made up for H1 disappointment, which is all the more encouraging as these are likely to be the company’s medium-term profit drivers. Valuation is low in terms of EV/EBITDA and at a glaring discount to real asset value (‘fair value’ adjustment of c 1,000p/share to reported 782p NAV will only increase on inclusion of new high-value estate).

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

9.3

12/16

272.5

94.1

34.2

73.9

21.0**

9.9

12/17e

315.0

102.0

36.0

73.9

22.0

9.3

12/18e

334.0

110.0

44.0

90.8

23.0

8.4

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

H2 back on form

After August’s profit warning (higher than expected costs and delayed openings), PPHE’s second half performance makes good reading. London, its largest profit centre, looks to have clearly outperformed the market by almost recovering its H1 RevPAR shortfall (we estimate 5%), thereby mitigating severe cost pressures to deliver maintained EBITDA. In Croatia 11% rate-led revenue gain in its key trading period contributed to pro forma constant currency EBITDA up 8%. External factors were also favourable, notably foreign exchange, reclassification of pre-opening costs as exceptional and a one-off €1m lower incentive rent in Germany as well as delays to the openings of Waterloo and Park Royal, which curbed trading losses. Predictably, Netherlands softened (RevPAR -5%) after a strong H1, partly because sterling weakness depressed Amsterdam’s key feeder market from the UK.

2017 EBITDA forecast raised by £3m

Our confidence in more of the same underpins our current-year upgrade (details on page 2). In London costs remain an issue but there is reassurance in the benefit of a weaker pound on inbound tourism and staycations as well as certain major sporting events. Security and geopolitical concerns apart, PWC forecasts RevPAR growth of c 3% this year and next. We are now also more positive about Croatia where strong demand and investment should broadly maintain 2017 EBITDA (albeit currency assisted) despite first inclusion of its off-season Q1 (estimated £3m loss). In contrast, we are lowering our forecast boost from c 900 new rooms in London as Waterloo is not fully open until H2 and Park Royal’s soft opening is delayed to Q2.

Valuation: Underrated

PPHE’s 2018e EV/EBITDA rating of 8.4x appears below the average (8.9x) of European branded peers. Fair value adjustment of £439m, as reported at December 2016, results in an adjusted NAV of c £18.20 per share with a further material uplift expected as the new London hotels come on stream.

Exhibit 1: Analysis of revenue and profit

Y/E December (£m)

H115

H215

FY15

H116

H216

FY16

2017e

2018e

Revenue

UK

London

RevPAR

£124

£144

£134

£118

£150

£135

£136

£137

Change

Flat

+1%

+1%

-5%

+4%

Flat

+1%

+1%

Available rooms

1880

1880

1880

1898

1910**

1904**

2052**

2082

Room revenue

42.4

49.5

91.9

41.0

52.8

93.8

102.0

104.0

Non-room revenue

20.9

22.8

43.7

20.5

22.5

43.0

45.0

45.5

Existing revenue

63.3

72.3

135.6

61.5

75.3

136.8

147.0

149.5

Waterloo + Park Royal*

-

-

-

-

0.4

0.4

24.0

34.0

Total London revenue

63.3

72.3

135.6

61.5

75.7

137.2

171.0

183.5

Leeds and Nottingham

5.2

6.6

11.8

4.9

6.6

11.5

12.0

12.0

UK

68.5

78.9

147.4

66.4

82.3

148.7

183.0

195.5

Netherlands (€m)

28.4

30.1

58.5

29.6

29.4

59.0

57.0***

60.0

Exchange rate

1.38

1.39

1.38

1.28

1.17

1.22

1.15

1.15

Netherlands

20.6

21.7

42.3

23.2

25.1

48.3

49.5

52.0

Croatia (HRKm)****

-

-

-

92.1

331.0

423.1

435.0

450.0

Exchange rate

-

-

-

9.63

8.96

9.17

8.70

8.70

Croatia

-

-

-

9.6****

36.5

46.1

50.0

52.0

Germany and Hungary*****

10.4

11.4

21.8

10.6

14.5

25.0

28.5

29.5

Owned & leased hotels

99.5

112.0

211.5

109.7

158.4

268.1

311.0

329.0

Management and holdings

2.7

4.5

7.2

1.8

2.6

4.4

4.0

5.0

TOTAL

103.2

116.5

218.7

111.6

160.9

272.5

315.0

334.0

EBITDA

UK

London

Existing

23.6

28.8

52.4

20.3

29.4

49.7

50.0

50.0

Margin (%)

37

40

39

33

39

36

34

33

Waterloo + Park Royal*

-

-

-

-

(0.5)

(0.5)

5.0

10.0

Total London EBITDA

23.6

28.8

52.4

20.3

28.9

49.2

55.0

60.0

Leeds and Nottingham

0.8

1.2

2.0

0.7

1.2

1.9

2.0

2.0

UK

24.4

30.0

54.4

21.0

30.1

51.1

57.0

62.0

Netherlands (€m)

8.8

9.8

18.6

9.5

8.4

17.9

16.5

17.5

Exchange rate

1.38

1.39

1.38

1.28

1.17

1.22

1.15

1.15

Netherlands

6.4

7.0

13.4

7.4

7.2

14.6

14.5

15.3

Croatia (HRKm)****

-

-

-

14.9

139.0

153.9

139.0

148.0

Exchange rate

-

-

-

9.63

8.96

9.17

8.70

8.70

Croatia**

-

-

-

1.5

15.3

16.8

16.0

17.0

Germany and Hungary*****

(0.4)

0.1

(0.4)

(0.8)

1.7***

0.9

3.0

4.2

Owned & leased hotels

30.3

37.1

67.5

29.2

54.2

83.4

90.5

96.5

Management and holdings

4.8

7.8

12.6

3.3

7.4

10.7

11.5

13.5

TOTAL

35.1

45.0

80.1

32.5

61.6

94.1

102.0

110.0

Source: Edison Investment Research. Note: *December 2016: Waterloo 494 rooms and 4.17 Park Royal 212 rooms; we assume 530 rooms average in 2017. **Including December 2016 Riverbank extension 184 rooms and rooms off at Sherlock Holmes (estimated 30). ***Rooms off in Amsterdam (estimated 50). ****From April 2016. *****Including June 2016 Nuremberg 177 rooms and July 2016 termination of Berlin lease 155 rooms; H215 restated for comparability.


Exhibit 2: Financial summary

£000s

2015

2016

2017e

2018e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

 

218,700

272,500

315,000

334,000

EBITDA

 

 

 

80,100

94,100

102,000

110,000

Operating Profit (before amort and except)

 

 

63,100

70,900

75,500

82,500

Intangible Amortisation

(2,000)

(2,500)

(2,500)

(2,500)

Operating Profit

61,100

68,400

73,000

80,000

Net Interest

(29,300)

(34,900)

(39,500)

(38,500)

Associates

(2,000)

(1,800)

0

0

Exceptionals

(1,800)

6,500

0

0

Profit Before Tax (norm)

 

 

 

31,800

34,200

36,000

44,000

Profit Before Tax (FRS 3)

 

 

 

28,000

38,200

33,500

41,500

Tax

1,200

(100)

(1,500)

(2,000)

Profit After Tax (norm)

33,000

34,100

34,500

42,000

Profit After Tax (FRS 3)

29,200

38,100

32,000

39,500

Average Number of Shares Outstanding (m)

41.8

42.2

42.2

42.2

EPS - normalised (p)

 

 

 

76.1

73.9

73.9

90.8

EPS - normalised fully diluted (p)

 

 

 

76.1

73.9

73.9

90.8

EPS - (IFRS) (p)

 

 

 

69.9

83.2

68.7

85.3

Dividend per share (p)

20.0

21.0

22.0

23.0

EBITDA Margin (%)

36.6

34.5

32.4

32.9

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

28.9

26.0

24.0

24.7

BALANCE SHEET

Fixed Assets

 

 

 

885,600

1,122,300

1,150,000

1,135,000

Intangible Assets

21,900

25,200

23,000

21,000

Tangible Assets

687,500

947,200

970,000

960,000

Income units sold to private investors

125,500

122,500

120,000

118,000

Investments

50,700

27,400

37,000

36,000

Current Assets

 

 

 

71,700

195,600

123,000

126,000

Restricted deposits

3,200

25,500

15,000

15,000

Stocks

1,000

2,400

3,000

3,200

Debtors

9,100

12,600

13,000

13,800

Cash

50,600

144,700

80,000

80,000

Other

7,800

10,400

12,000

14,000

Current Liabilities

 

 

 

(59,900)

(173,000)

(75,700)

(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)

(20,000)

(20,000)

Long Term Liabilities

 

 

 

(629,500)

(814,700)

(845,000)

(807,000)

Long term borrowings

(440,100)

(642,100)

(682,000)

(651,000)

Financial liability to unit holders

(136,200)

(134,000)

(132,000)

(128,000)

Other long term liabilities

(53,200)

(38,600)

(31,000)

(28,000)

Net Assets

 

 

 

267,900

330,200

352,300

377,300

CASH FLOW

Operating Cash Flow

 

 

 

83,200

79,500

102,000

110,000

Net Interest

(32,500)

(37,300)

(38,800)

(38,500)

Tax

(100)

0

(1,000)

(1,000)

Capex

(63,100)

(87,300)

(75,000)

(30,000)

Acquisitions/disposals

(3,600)

(64,300)

0

0

Exchange rate

6,000

(26,700)

0

0

Dividends

(8,300)

(50,600)

(9,300)

(9,500)

Other

(5,800)

(500)

0

0

Net Cash Flow

(24,200)

(187,200)

(22,100)

31,000

Opening net debt/(cash)

 

 

 

373,500

397,700

584,900

607,000

HP finance leases initiated

0

0

0

0

Other

0

0

0

0

Closing net debt/(cash)

 

 

 

397,700

584,900

607,000

576,000

Source: PPHE Hotel Group accounts, Edison Investment Research

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

245 Park Avenue, 39th Floor

10167, 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

245 Park Avenue, 39th Floor

10167, 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

245 Park Avenue, 39th Floor

10167, 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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