PPHE Hotel Group — Elevated discount to NAV

PPHE Hotel Group (LN: PPH)

Last close As at 22/05/2024

1,070.00

0.00 (0.00%)

Market capitalisation

455m

More on this equity

Research: Consumer

PPHE Hotel Group — Elevated discount to NAV

PPHE’s FY19 results were in line with our expectations, with RevPAR outperformance in most markets in which it competes. FY20 looks a more challenging year due to the threats to travel from the outbreak of the coronavirus, as well as tough comparatives. The company has a history of outperforming its peers in good and tough markets and has the benefit of maturing room stock in key markets. In the long term, the development pipeline continues to look promising. We downgrade our EBITDA forecast for FY20 by 14% due to the uncertainty in this environment. The shares are trading at a discount to the reported EPRA NAV of c 50%.

Russell Pointon

Written by

Russell Pointon

Director of Content, Consumer and Media

Consumer

PPHE Hotel Group

Elevated discount to NAV

FY19 results

Travel & leisure

12 March 2020

Price

1,286p

Market cap

£546m

Net debt (£m) at December 2019

514.6

Shares in issue

42.5m

Free float

50.4%

Code

PPH

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(33.0)

(28.7)

(24.5)

Rel (local)

(15.0)

(13.2)

(10.2)

52-week high/low

2140p

1340p

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

Q1 trading statement

April 2020

Interim results

September 2020

Analysts

Russell Pointon

+44 (0)20 3077 5757

Milosz Papst

+44 (0)20 3077 5700

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

PPHE’s FY19 results were in line with our expectations, with RevPAR outperformance in most markets in which it competes. FY20 looks a more challenging year due to the threats to travel from the outbreak of the coronavirus, as well as tough comparatives. The company has a history of outperforming its peers in good and tough markets and has the benefit of maturing room stock in key markets. In the long term, the development pipeline continues to look promising. We downgrade our EBITDA forecast for FY20 by 14% due to the uncertainty in this environment. The shares are trading at a discount to the reported EPRA NAV of c 50%.

Year end

Revenue (£m)

EBITDA
(£m)

EPS*
(p)

DPS
(p)

EV/EBITDA
(x)

Yield
(%)

12/18

341.5

113.2

68.1

35.0

10.4

2.7

12/19

357.7

122.9

87.1

37.0

9.6

2.9

12/20e

326.6

110.5

37.6

37.0

10.6

2.9

12/21e

366.3

126.6

66.7

39.0

9.6

3.0

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

FY19 results in line with expectations

FY19 was a good year financially and operationally with revenue growth of 5.2% and EBITDA growth of 3.4% on a like-for-like basis. The key contributors to growth were the UK and the Netherlands, with outperformance versus the broader market and peers as they continued to benefit from the investment programme from FY17–19. Germany also performed well, including some benefit from conferences, which presents a tough comparative for FY20. As expected, Croatia fared less well due to increased competition from other Mediterranean countries.

FY20 EBITDA downgraded by 14%

In the face of a more challenging backdrop due to the outbreak of coronavirus, we downgrade our EBITDA forecast for FY20 by c 14%. Our key assumption is that occupancy falls by 10 percentage points in the key operating countries, excluding Croatia. This produces RevPAR declines similar to those experienced during FY09, which was affected by the financial crisis and the outbreak of swine flu (analysed later). We rationalise this by assuming a shorter but deeper impact on travel in FY20 than FY09. In addition, we assume 30–40% of the lost revenue drops through to declines in EBITDA. For FY21, we assume that occupancy and operational gearing reverts, producing revenue growth of c 12% and EBITDA growth of c 15%.

Valuation: Asset valuation to the fore

The share price performed well through the early news around the outbreak of coronavirus, before peaking at 2,140p on 20 February 2020, but the price has since fallen by 40% to 1,286p. As a result, the shares trade at a discount of 50% to the EPRA NAV per share of £25.46 at 31 December 2019, which should provide some support in the face of downgrades from the current economic uncertainty. On our downgraded forecasts, the EV/EBITDA multiples for FY20 and FY21 are 10.6x and 9.6x, respectively. The average EV/EBITDA multiple has been 8.2x since FY10.

FY19 results: Good operationally and financially

Financially, FY19 was a good year for PPHE with total revenue growth of 4.8% to £357.7m, EBITDA growth of 8.6% to £122.9m, clean PBT growth of 7.9% to £49.7m and DPS growth of 5.7% to 37p. The numbers were in line with our expectations.

On a like-for-like basis, revenue increased by 5.2% due to a RevPAR increase of 5.1%. The RevPAR increase was due to a like-for-like increase in occupancy of 130bp to 80.7%, and the average room rate increasing by 3.4% to £128.5.

FY19 was also an active year from a development perspective, with three hotels repositioned and reopened in the UK and Netherlands; the repositioning of a campsite in Croatia; site works progressed for the art-otel in Hoxton London; and the acquisition of other sites for actual or potential development in New York (opening in 2023), Belgrade (no opening date as yet) and London. After the year-end, PPHE announced the acquisition of a property for development in Zagreb.

Exhibit 1: Group performance

Year-end December, £000s

H118

H218

FY18

H119

H219

FY19

Revenue

148,809

192,673

341,482

155,273

202,419

357,692

Growth y-o-y (l-f-l)

4.4%

6.0%

6.3%

5.2%

Occupancy

74.9%

79.4%

76.8%

80.6%

Average room rate (£)

114.4

123.1

121.7

128.5

Growth y-o-y (l-f-l)

(0.9%)

2.0%

4.8%

3.4%

RevPAR

85.7

97.7

93.4

103.6

Growth y-o-y (l-f-l)

2.9%

5.0%

7.5%

5.1%

EBITDAR

44,730

75,977

120,707

46,506

78,162

124,668

Margin

30.1%

39.4%

35.3%

30.0%

38.6%

34.9%

Growth y-o-y (l-f-l)

0.4%

5.0%

5.1%

3.2%

EBITDA

40,581

72,591

113,172

45,655

77,239

122,894

Margin

27.3%

37.7%

33.1%

29.4%

38.2%

34.4%

Growth y-o-y (l-f-l)

0.5%

5.6%

5.7%

3.4%

Source: PPHE Hotel Group accounts, Edison Investment Research

Geographically, the greatest contributors to revenue growth were the UK and the Netherlands with RevPAR outperformance in favourable market conditions and rooms coming on stream after repositionings. All countries excluding Croatia increased EBITDA on an absolute basis, but the Netherlands saw a reduction in margin as well as Croatia, due to the disruption from the repositionings and continuing labour cost pressures, the latter being a feature in all markets. The introduction of IFRS 16 increased EBITDA by £5.3m, or 4.7%, as the company has leases on two hotels in Germany.

Market-by-market review

Exhibit 2: UK performance

Year-end December, £000s

H118

H218

FY18

H119

H219

FY19

Revenue

89,568

105,524

195,092

95,656

111,725

207,381

Growth y-o-y (l-f-l)

3.6%

4.6%

6.8%

6.3%

Occupancy

82.7%

85.7%

85.0%

87.7%

Average room rate (£)

135.3

145.1

144.0

152.4

Growth y-o-y (l-f-l)

(4.7%)

0.0%

6.4%

5.0%

RevPAR

112.0

124.4

122.3

133.7

Growth y-o-y (l-f-l)

(2.7%)

3.2%

9.2%

7.5%

EBITDAR

29,000

37,800

66,800

31,000

40,000

71,000

Margin

32.4%

35.8%

34.2%

32.4%

35.8%

34.2%

Growth y-o-y (l-f-l)

6.6%

7.1%

6.6%

6.0%

EBITDA

27,889

37,117

65,006

30,849

39,847

70,696

Margin

31.1%

35.2%

33.3%

32.2%

35.7%

34.1%

Growth y-o-y (l-f-l)

3.6%

5.8%

5.7%

5.0%

Source: PPHE Hotel Group accounts, Edison Investment Research

The UK benefited from good underlying market conditions and consistent outperformance in key markets such as London and Nottingham; improving performance at several hotels as trading ramps after development or repositioning in prior years (Park Plaza London Waterloo and Park Plaza London Riverbank); as well as the re-opening of Holmes Hotel London in H119. At 87.7%, occupancy was the highest annual level recorded for the UK since PPHE has been listed; the prior peak was 87.5% in 2014. This was the second year of EBITDA margin improvement after two years of margin falls in FY16 and FY17, which were due to property tax increases and the disruption from repositioning, etc.

Per PPHE and STR Global, the RevPAR increases for the wider London, Leeds and Nottingham markets were 3.7%, 3.9% and broadly flat, respectively, therefore PPHE’s aggregate growth of 7.5% is well above those of the markets. In London, PPHE’s RevPAR growth of 7.7% compares with the upper upscale segment’s growth of 4.7%.

Looking forward, STR Global forecasts London RevPAR growth for PPHE’s segment of 1.7% in FY20, although this forecast was made prior to considering any impact from the coronavirus outbreak. In FY20 PPHE should benefit from the maturing and further renovation of Holmes Hotel London, Park Plaza London Riverbank and Park Plaza Victoria London. An art’otel is expected to open in FY22 (art’otel battersea) and FY23 (art’otel hoxton with 343 hotel rooms and five floors of office space).

Exhibit 3: Netherlands performance

Year-end December, £000s

H118

H218

FY18

H119

H219

FY19

Revenue

24,829

24,740

49,569

25,859

27,917

53,776

Growth y-o-y (l-f-l €)

7.5%

8.0%

7.4%

Occupancy

83.9%

85.7%

86.6%

86.2%

Average room rate (€)

139.8

138.4

145.0

142.6

Growth y-o-y (l-f-l)

7.9%

2.6%

2.2%

RevPAR (€)

117.2

118.6

125.6

122.9

Growth y-o-y (l-f-l)

8.1%

5.2%

3.2%

EBITDAR

7,200

7,000

14,200

7,100

7,900

15,000

Margin

29.0%

28.3%

28.6%

27.5%

28.3%

27.9%

Growth y-o-y (l-f-l €)

(2.4%)

3.5%

5.0%

9.6%

EBITDA

7,132

6,959

14,091

7,083

7,920

15,003

Margin

28.7%

28.1%

28.4%

27.4%

28.4%

27.9%

Growth y-o-y (l-f-l €)

0.0%

11.0%

3.8%

6.3%

Source: PPHE Hotel Group accounts, Edison Investment Research

The Netherlands performed in line with our expectations. Despite FY19 being affected by the closure of a number of hotels during the year, the Netherlands recorded its highest annual occupancy level since PPHE listed. On a like-for-like basis, occupancy was 86.9% versus 86.0% in FY18. FY19 saw the maturing of Park Plaza Victoria Amsterdam, which reopened in FY18, but was affected by repositioning projects at Park Plaza Vondelpark and Park Plaza Utrecht, which fully reopened for the last quarter of FY19.

Per PPHE and STR Global, RevPAR for the Amsterdam, Utrecht and Eindhoven markets in FY19 fell by 1.3%, 1.4% and 1.1%, respectively, due to reductions in occupancy and room rates. In Amsterdam, RevPAR for PPHE’s hotels grew by 4% versus the upper upscale market, which declined by 1.3%.

For FY20, STR Global forecasts 1.5% RevPAR growth for Amsterdam; again this forecast was made before the impact of coronavirus was considered. PPHE should continue to benefit from the ramping of Park Plaza Victoria Amsterdam, Park Plaza Vondelpark, Amsterdam and Park Plaza Utrecht.

Exhibit 4: Germany performance

Year-end December, £000s

H118

H218

FY18

H119

H219

FY19

Revenue

15,874

15,569

31,443

14,122

15,399

29,521

Growth y-o-y (l-f-l €)

7.9%

3.2%

2.7%

Occupancy

77.7%

80.7%

78.0%

80.7%

Average room rate (€)

95.5

98.1

105.8

106.9

Growth y-o-y (l-f-l)

1.9%

4.3%

4.9%

RevPAR (€)

74.2

79.2

82.5

86.2

Growth y-o-y (l-f-l)

10.0%

4.8%

4.7%

EBITDAR

4,200

4,800

9,000

4,100

5,000

9,100

Margin

26.5%

30.8%

28.6%

29.0%

32.5%

30.8%

Growth y-o-y (l-f-l €)

0.0%

4.1%

6.8%

6.1%

EBITDA

2,070

3,172

5,242

3,947

4,757

8,704

Margin

13.0%

20.4%

16.7%

27.9%

30.9%

29.5%

Growth y-o-y (l-f-l €)

(4.0%)

5.3%

3.6%

6.3%

Source: PPHE Hotel Group accounts, Edison Investment Research

PPHE outperformed its peers in Germany, where growth was mostly positive, helped by conferences in Cologne. Per PPHE and STR Global, RevPAR for the Berlin, Cologne, Nuremberg and Budapest markets changed by +1.4%, +8.5%, -4.4% and +6.3%, respectively, in FY19. In Berlin, PPHE’s RevPAR increased by 4.9% versus the upper upscale segment growth of 1.4%. The EBITDA margin of 29.5% was the highest ever reported by the company, in part due to changes in ownership structure of the freeholds etc, in recent years. Excluding these changes, the EBITDAR margin of 30.8% was also an all-time high. Looking forward to FY20, there will be a less-favourable backdrop due to fewer conferences in Cologne.

Exhibit 5: Croatia performance

Year-end December, £000s

H118

H218

FY18

H119

H219

FY19

Revenue

16,297

43,896

60,193

16,710

44,437

61,147

Growth y-o-y (HRK)

9.7%

3.4%

5.0%

3.9%

2.8%

3.1%

Occupancy

51.0%

62.4%

52.7%

63.1%

Average room rate (HRK)

569.0

785.8

571.0

772.1

Growth y-o-y

1.4%

0.0%

0.4%

(1.7%)

RevPAR (HRK)

290.1

490.4

300.8

487.1

Growth y-o-y

10.0%

0.9%

3.7%

(0.7%)

EBITDAR

700

19,000

19,700

0

19,400

19,400

Margin

4.3%

43.3%

32.7%

0.0%

43.7%

31.7%

Growth y-o-y (HRK)

27.9%

(2.6%)

(1.8%)

(92.7%)

2.8%

(0.4%)

EBITDA

96

18,462

18,558

-554

18,781

18,227

Margin

0.6%

42.1%

30.8%

-3.3%

42.3%

29.8%

Growth y-o-y (HRK)

N/M

(2.9%)

(2.4%)

N/M

3.0%

(0.6%)

Source: PPHE Hotel Group accounts, Edison Investment Research

The Croatian operations performed better than our expectations due to a good focus on costs while continuing to invest in the business. As previously disclosed, competition from Greece, Turkey and Eqypt intensified during the year, which has led to the EBITDA margin being at its lowest level since the business was consolidated in FY16. Looking to the future, FY20 should benefit from the maturing of the Arena One 99 campsite and the first phase of Arena Kažela Campsite, opened in FY18 and FY19, respectively; and the second phase of investment in Arena Kažela and launch of Verudela Beach resort Pula, both scheduled to open before the summer season of FY20. FY21 should see the opening of the luxury upscale Hotel Brioni Pula.

EPRA KPIs

The EPRA NAV grew from £24.57 at the end of FY18 to £25.46 at the end of FY19, an increase of 3.6%. This is a slight deterioration from the £25.52 reported at the end of H119, which is solely due to currency movements, ie the strengthening of sterling against the euro towards the end of the year. The key positive drivers behind the NAV expansion were a revaluation during the year of £1.07 and the FY19 earnings of £0.79, offset by dividends of £0.36, other movements of £0.07 and currency of £0.54.

Adjusted EPRA earnings increased by 11.7% to 128p. The dividend pay-out ratio relative to EPRA earnings was 29% in FY19 versus 30% in FY18.

Balance sheet

The balance sheet continues to look strong, with net debt being broadly stable at £514.6m at the end of 2019 versus £479.6m at the end of 2018. The gross bank debt of £678.3m has an average term to maturity of 7.1 years, interest cover is 4.4x and the average coupon is 3.1%. The key changes to the net debt position through 2019 were operating cash flow of £80m that helped to fund £99m of acquisitions and capex.

Current trading and the coronavirus

The current trading statement indicates that trading for the first two months of the year is in line with the board’s expectations.

At the date of the results, there had been no significant impact on PPHE’s operations from the global outbreak of coronavirus, however it was too soon to have seen any impact given the countries in which it operates. Management closely monitors cancellations of existing bookings and pacings of new bookings to gauge the health of the business. To date there were few cancellations from Asian travellers, which are not a major source of customers, and the majority of these ‘cancellations’ had postponed to later in the year rather than cancelled outright. With respect to new bookings, there had been a slight, ie not material, slowdown. Management’s preference in a downturn is to maintain discipline on room rate at the expense of occupancy.

On 11 March 2020, PPHE issued a business update, which highlighted the following: ‘As has been widely reported in the media and by industry benchmark reports, over recent weeks there has been reduced demand for international travel which has resulted in an increase in cancellations and a slowdown in future bookings across the travel and hotel industry, including the Group’s estate.

Due to the fast-moving nature of the situation, it is too early to provide any meaningful estimate of quantum on the Group’s earnings for the current financial year given the trajectory and duration of the virus and its impact remains highly uncertain. The necessary actions to minimise the impact on the business are being taken.’

PPHE’s financial performance in a downturn

As PPHE was listed in 2007, its quoted history includes the global demand shock from the end of H208 and through FY09 due to the global financial crisis and the swine flu epidemic. All previous forms of coronavirus were not as severe as the current form, and the greatest impact in FY09 was due to the macroeconomic uncertainty due to the financial crisis. At this time the company’s functional reporting currency was the euro and disclosure of KPIs such as like-for-like growth was less comprehensive than today.

Since FY09 the group structure has changed significantly with the UK’s importance increasing from 34% of revenue in FY09 to 58% in FY19, and the consolidation of Croatia from FY16, which represented 17% of revenue in FY19. Therefore, PPHE is more exposed to the London market and the seasonal summer holiday trading season in Croatia than it was in FY09.

Exhibit 6: PPHE’s financial performance during the global financial crisis

€000s

2008

2009

2010

2011

Group revenue

93,385

80,326

139,829

202,380

Growth y-o-y

(14%)

74%

45%

Growth y-o-y (l-f-l)

N/A

3.1%

12.6%

Occupancy

79.8%

79.1%

77.4%

77.7%

Average room rate (€)

113.9

97.8

110.7

119.2

Growth y-o-y (l-f-l)

N/A

10.1%

9.7%

RevPAR (€)

90.3

77.4

85.7

92.6

Growth y-o-y

(14.3%)

10.7%

8.1%

Growth y-o-y (l-f-l)

N/A

8.7%

12.4%

Growth y-o-y (constant ccy)

(9.7%)

EBITDA

25,433

16,244

37,633

65,050

Margin

27.2%

20.2%

26.9%

32.1%

Growth y-o-y

(36%)

132%

73%

Operational gearing

70%

36%

44%

Source: PPHE Hotel Group accounts, Edison Investment Research

At the group level, revenue fell by 14% in FY09, however this included sterling depreciating versus the euro by 8% (from an average of €1.05/£ in FY08 to €1.13/£ in FY09), which had a negative impact on revenue. PPHE recovered strongly in FY10 helped by an underlying improvement, new hotel openings and acquisitions; on a like-for-like basis revenue increased by 3.1% in FY10. Occupancy fell by 240bps from peak of 79.8% in FY08 to a trough of 77.4% in FY10; average room rate fell from €113.9 in FY08 to €97.8 in FY09 before recovering strongly in FY10, but this was affected by currency moves and mix through openings and M&A. There was high operational gearing (the drop through of changes in revenue to changes in EBITDA) as EBITDA fell by 36% in FY09, with a strong recovery in FY10. In part this was due to a market specific issue, in Germany and Hungary, where there was oversupply, and therefore it experienced a greater EBITDA loss through the economic downturn.

Given the influence of currency and geographic mix on the group numbers, it is more instructive to look at trends in the key geographic areas.

Exhibit 7: PPHE’s UK financial performance during the global financial crisis

€000s

2008

2009

2010

2011

Revenue

33,175

27,518

81,179

139,981

Growth y-o-y

(17%)

195%

72%

Occupancy

85.0%

84.8%

81.8%

82.1%

Average room rate (£)

120.3

114.7

118.0

126.7

Growth y-o-y

(4.7%)

2.9%

7.4%

RevPAR (£)

101.8

97.3

96.5

104.0

Growth y-o-y (l-f-l)

N/A

7.2%

15.8%

EBITDA

11,131

11,369

24,512

47,487

Margin

33.6%

41.3%

30.2%

33.9%

Growth y-o-y

2%

116%

94%

Operational gearing

(4%)

24%

39%

Source: PPHE Hotel Group accounts, Edison Investment Research

In FY09, the headline UK revenue performance was affected by the depreciation of sterling versus the euro, and the underlying revenue was affected by a reduction in the average room rate of c 5% due to the tougher trading conditions. The London hotels maintained or improved occupancy levels and outperformed the market, which experienced a RevPAR decline of 6.4%. The London market performed better than other major European cities per management. Impressively, in FY09 a strong focus on costs produced a 2% increase in EBITDA, despite the currency depreciation.

In FY10, underlying trading conditions began to improve, more notably in H210. However, occupancy, etc, was affected by the opening of Park Plaza Westminster Bridge London and the acquisition of the Park Plaza hotels in Leeds and Nottingham. On an underlying basis RevPAR increased by 7.2%. The London hotels outperformed their peers due to occupancy being ahead of their competitors.

Exhibit 8: PPHE’s Netherlands performance during the global financial crisis

€000s

2008

2009

2010

2011

Revenue

22,950

19,779

22,847

24,820

Growth y-o-y

(14%)

16%

9%

Occupancy

89.5%

84.1%

77.9%

74.9%

Average room rate (€)

125.9

108.7

102.2

109.4

Growth y-o-y

(13.7%)

(6.0%)

7.0%

RevPAR (€)

113.2

91.4

79.6

82.0

Growth y-o-y

(19.3%)

(12.9%)

3.0%

EBITDA

8,373

6,474

7,607

7,766

Margin

36.5%

32.7%

33.3%

31.3%

Growth y-o-y

(23%)

18%

2%

Operational gearing

60%

37%

8%

Source: PPHE Hotel Group accounts, Edison Investment Research

In FY09, the business was severely affected by the macroeconomic conditions due to reduced demand from business and there was reduced demand from tourism as the strength of the euro had an impact on the number of American and British visitors. The hotels in Amsterdam outperformed the peers with respect to occupancy and RevPAR. The level of operational gearing was high as the 14% fall in revenue led to a 23% fall in EBITDA.

In FY10, the recovery began in H1 for the market as a whole, but the group numbers for occupancy, average room rate and RevPAR were affected by the addition of Park Plaza Amsterdam Airport, where demand is more volatile and rates are lower than the city centre hotels. On a like-for-like basis, RevPAR increased by 4.7% due to a 5.7% improvement in average room rate.

Exhibit 9: PPHE’s German performance during the global financial crisis

€000s

2008

2009

2010

2011

Revenue

27,930

23,456

27,700

30,205

Growth y-o-y %

(16%)

18%

9%

Occupancy

70.9%

71.4%

70.4%

71.7%

Average room rate (€)

69.2

60.2

68.8

70.9

Growth y-o-y

(13.0%)

14.3%

3.1%

RevPAR (€)

48.8

43.0

48.4

50.9

Growth y-o-y

(11.9%)

12.6%

5.2%

EBITDA

(1,408)

(3,725)

(286)

(966)

Margin

(5.0%)

(15.9%)

(1.0%)

(3.2%)

Growth y-o-y

165%

(92%)

238%

Operational gearing

52%

81%

(27%)

Source: PPHE Hotel Group accounts, Edison Investment Research

As highlighted previously, Germany was experiencing oversupply during the economic downturn.

Since 2008, PPHE has become more dependent on room and accommodation revenue (camps and mobile homes) as shown in Exhibit 10.

Exhibit 10: PPHE’s revenue sources

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Rooms

64%

62%

67%

69%

69%

69%

67%

68%

67%

69%

69%

70%

Camps and mobile homes

0%

0%

0%

0%

0%

0%

0%

0%

4%

4%

5%

5%

Food and beverage

24%

24%

26%

26%

25%

25%

27%

27%

24%

23%

22%

21%

Minor Operating

2%

2%

2%

2%

2%

2%

2%

2%

2%

2%

2%

2%

Management fee

6%

7%

3%

2%

3%

1%

2%

2%

1%

1%

1%

1%

Franchise and reservation fee

3%

4%

2%

1%

1%

1%

1%

1%

0%

0%

0%

0%

Marketing fee

1%

1%

1%

1%

1%

1%

1%

1%

0%

0%

0%

0%

Other

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

1%

Source: PPHE Hotel Group accounts, Edison Investment Research

Now that we have looked at the revenue drivers, Exhibit 11 below highlights how the main expense items and margins progressed through FY08–11. These are likely to have been influenced in part by geographic mix, location of hotels within the country, such as London versus Leeds, and the phasing of acquisitions and openings. Some costs should be expected to be proportional to occupancy, such as housekeeping, utilities, etc. The largest costs that de-geared were salaries and franchise fees, etc.

Exhibit 11: PPHE’s expenses relative to sales during the global financial crisis

2008

2009

2010

2011

Salaries and related expenses

28.3%

30.1%

30.3%

28.2%

Franchise fees, reservation and commissions

7.1%

8.0%

7.1%

7.1%

Food and beverage

4.6%

4.9%

5.6%

5.1%

Insurance and property taxes

2.6%

2.9%

4.1%

4.5%

Utilities

3.1%

3.6%

3.4%

3.0%

Administration costs

2.9%

2.4%

3.1%

2.7%

Maintenance

1.9%

2.2%

1.6%

1.8%

Laundry, linen and cleaning

2.1%

2.2%

2.0%

1.8%

Supplies

1.1%

1.2%

1.5%

1.4%

IT expenses

0.8%

1.1%

0.8%

0.9%

Communication, travel and transport

1.3%

1.4%

1.0%

1.0%

Marketing expenses

1.9%

2.0%

1.4%

0.9%

Other expenses

3.9%

5.6%

4.8%

4.4%

Total operating expenses

61.6%

67.5%

66.8%

62.9%

EBITDAR

38.4%

32.5%

33.2%

37.1%

Rental expenses

11.2%

12.3%

6.3%

4.9%

EBITDA

27.2%

20.2%

26.9%

32.1%

Source: PPHE Hotel Group accounts, Edison Investment Research

To conclude, in its main markets of the UK and the Netherlands, PPHE outperformed its competitors during the FY09 economic downturn.

Financials

Acknowledging the extreme uncertainty for forecasts given the potential impact on travel from coronavirus, we downgrade our assumptions for FY20 and introduce our FY21 forecasts.

For all countries, excluding Croatia, in FY20 we assume a reduction in occupancy of 10 percentage points and retain our assumptions for average room rates: a reduction of 2% in the UK and flat in the Netherlands, Germany and Hungary. We also update our foreign exchange rate assumptions for the recent strength in sterling compared to the euro since our last forecasts were made. These assumptions produce RevPAR declines in sterling of 13% in the UK, and 12% in the Netherlands and Germany and Hungary. The 13% decline in RevPAR for the UK compares with its absolute decline of 4.4% from £101.8 in FY08 to £97.3 in FY09; and the 12% decline in the Netherlands compares with its decline of 19.3% in FY09. We rationalise this as the impact on travel being deeper with more travellers affected for a shorter time than in FY09. At the group level, constant currency RevPAR declined by 9.7% in FY09. We also assume that non-room revenue declines in line with room revenue. With respect to EBITDA, we assume a drop-through of the lost revenue to EBITDA of 30–40% for the individual countries, which compares with -4% for the UK and 60% for the Netherlands during FY09. In total this produces a revenue downgrade for FY20 of c 12% from £353.0m to £326.6m, and a downgrade to EBITDA of 14% from £128.0m to £110.5m.

For FY21, we assume the lost occupancy in FY20 returns and the group enjoys a similar level of operational gearing into the recovery. This produces forecasts for revenue of £366.3m (growth of c 12%) and EBITDA of £126.6m (growth of c 15%).

Valuation

At 1,286p, the shares are trading at EV/EBITDA multiples for FY20 and FY21 of 10.6x and 9.6x, respectively. At this level it is trading at a discount of 50% to the EPRA NAV at 31 December 2019.

The history of PPHE’s EV/EBITDA valuation, including the high, low and average multiple in each year since it listed in 2007, as well as the prospective multiples for FY20 and FY21, are shown in Exhibit 12. The quoted figures are the average multiple for each historic year and then the prospective multiples for FY20 and FY21. Between FY10 and FY19, the EV/EBITDA multiple has averaged 8.2x.

Exhibit 12: PPHE’s EV/ EBITDA multiples

Source: Company accounts, Refinitiv and Edison Investment Research

Exhibit 13: Financial summary

£000s

2015

2016

2017

2018

2019

2020e

2021e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

218,669

272,470

325,118

341,482

357,692

326,558

366,303

EBITDA

 

 

80,121

94,118

107,278

113,164

122,894

110,501

126,599

Operating Profit (before amort and except)

 

63,097

71,313

75,448

79,731

83,640

70,492

84,550

Intangible Amortisation

(2,018)

(2,508)

(2,432)

(2,462)

(2,495)

(2,372)

(2,372)

Operating Profit

61,079

68,805

73,016

77,269

81,145

68,120

82,178

Net Interest

(30,950)

(35,341)

(40,817)

(40,736)

(39,961)

(40,941)

(40,941)

Associates

(1,948)

(1,750)

(350)

144

178

178

178

Exceptionals

(128)

6,505

(152)

9,706

(2,885)

0

0

Profit Before Tax (norm)

 

 

28,181

31,714

31,849

36,677

41,362

27,357

41,415

Profit Before Tax (FRS 3)

 

 

28,053

38,219

31,697

46,383

38,477

27,357

41,415

Tax

1,189

(62)

(1,748)

(2,951)

4,105

(2,462)

(4,141)

Profit After Tax (norm)

29,370

31,652

30,101

33,726

45,467

24,894

37,273

Profit After Tax (FRS 3)

29,242

38,157

29,949

43,432

42,582

24,894

37,273

Minorities

0

(3,040)

(5,678)

(5,380)

(8,667)

(8,890)

(8,871)

Net income (norm)

29,370

28,612

24,423

28,346

36,800

16,004

28,402

Net income (IFRS)

29,242

35,117

24,271

38,052

33,915

16,004

28,402

Average Number of Shares Outstanding (m)

42.1

42.4

42.4

42.5

42.6

42.6

42.6

EPS - normalised (p)

 

 

70.3

67.9

57.8

68.4

87.5

37.8

67.0

EPS - normalised fully diluted (p)

 

 

69.8

67.5

57.6

68.1

87.1

37.6

66.7

EPS - (IFRS) (p)

 

 

70.0

83.3

57.4

89.9

80.0

37.8

67.0

Dividend per share (p)

20.0

21.0

24.0

35.0

37.0

37.0

39.0

EBITDA Margin (%)

36.6

34.5

33.0

33.1

34.4

33.8

34.6

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

28.9

26.2

23.2

23.3

23.4

21.6

23.1

BALANCE SHEET

Fixed Assets

 

 

885,615

1,122,307

1,220,214

1,316,600

1,393,210

1,443,956

1,492,661

Intangible Assets

21,878

25,158

23,570

21,463

18,036

15,664

13,291

Tangible Assets

687,451

947,176

1,037,224

1,151,616

1,215,140

1,268,080

1,318,980

Income units sold to private investors

125,575

122,526

121,218

119,169

116,511

116,511

116,511

Investments

50,711

27,447

38,202

24,352

43,523

43,701

43,879

Current Assets

 

 

71,703

195,603

319,832

245,602

191,931

149,535

122,597

Restricted deposits

3,206

25,513

25,561

3,672

3,541

3,541

3,541

Stocks

999

2,412

2,701

2,481

2,317

2,115

2,373

Debtors

9,154

12,576

13,392

15,324

12,758

11,648

13,065

Cash

50,623

144,732

241,021

207,660

153,029

113,257

82,970

Other

7,721

10,370

37,157

16,465

20,286

18,975

20,649

Current Liabilities

 

 

(59,875)

(173,004)

(93,104)

(68,941)

(71,108)

(70,273)

(71,326)

Creditors

(48,500)

(54,713)

(60,157)

(53,631)

(57,792)

(56,957)

(58,010)

Short term borrowings

(11,375)

(118,291)

(32,947)

(15,310)

(13,316)

(13,316)

(13,316)

Long Term Liabilities

 

 

(629,539)

(814,704)

(1,006,004)

(1,014,719)

(1,033,272)

(1,033,272)

(1,033,272)

Long term borrowings

(440,110)

(642,120)

(666,936)

(681,981)

(664,945)

(664,945)

(664,945)

Financial liability to unit holders

(136,203)

(133,983)

(131,632)

(129,151)

(126,704)

(126,704)

(126,704)

Other long term liabilities

(53,226)

(38,601)

(207,436)

(203,587)

(241,623)

(241,623)

(241,623)

Net Assets

 

 

267,904

330,202

440,938

478,542

480,761

489,946

510,660

CASH FLOW

Operating Cash Flow

 

 

85,205

78,856

113,645

102,127

124,408

112,290

124,304

Net Interest

(32,500)

(37,304)

(43,120)

(41,330)

(43,252)

(40,941)

(40,941)

Tax

(84)

33

(676)

(4,183)

(1,005)

(2,462)

(4,141)

Capex

(63,103)

(87,298)

(99,898)

(67,251)

(84,906)

(92,949)

(92,949)

Acquisitions/disposals

(3,615)

(22,030)

0

0

0

0

0

Other investing

277

7,985

(35,494)

5,623

(14,006)

0

0

Financing

19,734

199,258

168,893

(18,476)

(14,780)

0

0

Dividends

(8,358)

(50,637)

(9,290)

(12,278)

(15,263)

(15,710)

(16,559)

Other

0

0

0

0

0

0

0

Net Cash Flow

(2,444)

88,863

94,060

(35,768)

(48,804)

(39,772)

(30,287)

Opening cash

 

 

54,714

50,623

144,732

241,021

207,660

153,029

113,257

Other

(1,647)

5,246

2,229

2,407

(5,827)

0

0

Closing cash

 

 

50,623

144,732

241,021

207,660

153,029

113,257

82,970

Opening net debt/ (cash)

 

 

373,498

397,577

584,931

408,090

479,626

514,629

554,401

Closing net debt/ (cash)

 

 

397,577

584,931

408,090

479,626

514,629

554,401

584,688

Source: Company accounts, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by PPHE Hotel Group and prepared and issued by Edison, in consideration of a fee payable by PPHE Hotel Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, 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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by PPHE Hotel Group and prepared and issued by Edison, in consideration of a fee payable by PPHE Hotel Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, 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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Research: Financials

Attica Bank — Refocus and grow

After a substantial balance sheet clean-up, Attica Bank is now beginning to implement its plan to refocus the business and expand its loan book. The time taken to refine and approve the strategy has deferred a return to profitability. Q2 and Q319 were significantly weaker than expected and we now expect profits only in 2021. The plan is to double the loan book in three years, with more cost cutting, a rebranding and a targeted approach to small business lending and the professional personal market. Through additional securitisations, management is hoping to reduce the legacy NPL book to zero by 2021. Successful delivery would allow ROE to approach 7.4% (5.1–5.7% with rights issue dilution) in 2022 and offer upside to the current 2020e P/BV of 0.22x.

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