PPHE Group - Park Plaza Hotels - 70% discount to peers

Friday, Jan 04 2013 by
2

PPHE Group (LSE:PPH) http://www.pphe.com/

Current price 236p, Full LSE Main Market listing. Market cap £97 million. Annual dividend 12p, yield 5%.

PPHE Group operate 4* hotels in London and European hub cities. These are run through three different brands, Park Plaza, Art'Otel and Arena Turist.

Investment thesis:

> Income - Current yield ~5%
> Value - Significant discount to peers IHG, WTB, MLC (on P/E, Price to cashflow, yield and price to book)
> Growth - Improving trading conditions and growth in store, Quarterly growth, new hotels in pipeline
> Board looking to unlock equity in properties
> Resilience of the travel and leisure sector in 2012


Valuation:

The main basis for my valuation is based on comparison to peers within the hotel/ leisure sector. Intercontinental Hotels (IHG), Whitbread (WTB) and Millenium and Copthorne (MLC).


Company P/E Yield (%) Price to cashflow Price to book

Company P/E Yield (%) Price to cashflow Price to book
IHG 17.94 2.56 8.68 8.68
WTB 15.98 2.26 10.04 3.07
MLC 14.27 2.47 10.57 0.76
PPH 8.01 5.05 3.01 0.45


As the data above shows, PPH is significantly undervalued compared to its peers.

If yield was to normalise to around 3% this would see the share price have to rise to around 400p.

Again normalisation of the p/e to around the industry average 12-14x earnings would see the share price appreciate to 364-420p.

Yet whilst these comparisons are quite crude they give us a good benchmark with regard to the sector itself and other London listed hotel groups.

Of concern to some investors is the level of the debt that PPHE Group carries. Currently PPHE has around €477mil of debt, yet is well within its covenants. Net equity gives a better view of the situation, with assets - liabilities giving shareholder equity of €200 mil or approximately 395 pence per share. NAV per share as of June 2012 was €6.07 or 494 pence per share.

Looking forward the business looks healthy and is growing rapidly. PPH continually posts quarter on quarter growth. Additionally trading has been ahead of expectations with the company stating in its November IMS:

"Our performance to 30 September 2012 has been encouraging and with the significant renovations completed earlier this year at several of our hotels, we anticipate further performance improvements ahead. As a result, the Board expects the full year results to be ahead of Company expectations."

The jewel in the crown for PPHE Group are the London hotels, the NAV update in June 2012 did not include a revaluation of the London hotels which is expected to come. Management have also indicated that they will look towards deals as a way of realising value within the asset base and increasing shareholder value.

Nice 6 month uptrend --- PPH in play:

pph chart1


Conclusion:

I do not feel that the discount to the sector is justified. Whilst debt levels are high, this has been utilised to the PPHE's advantage for rapid expansion. Debt is well within covenants and trading conditions are excellent. PPHE Group's hotels are relatively insulated from the European crisis given their prime locations, London and other European hubs.

Not only does PPHE look cheap on its own, the discount to peers on a variety of metrics reinforces the value on offer in PPH. Over the next 3-6 months I am bullish on the stock. Technically the stock is in an uptrend too which should lend to some positive momentum.

Investec rates the stock a buy, with a 330p price target.




Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. The author may own shares in any companies discussed, all opinions are his/her own & are general/impersonal. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


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    PPHE Hotel Group Limited through its subsidiaries, jointly controlled entities and associates, owns, leases, operates, franchises and develops full service upscale and lifestyle hotels in cities and regional centers in Europe. The Company’s activities are divided into owned hotel operations and management activities. The majority of the Group's hotels operate under two brands, Park Plaza Hotels & Resorts and art'otel. The Company has a license from Carlson, which is a global privately owned hospitality and travel company, to develop and operate Park Plaza Hotels & Resorts in Europe, the Middle East and Africa. The art'otel brand is fully owned by the Company. It has a minority ownership interest in the Arenaturist group, which is a hospitality company. The Company's portfolio of owned, leased, managed and franchised hotels includes approximately 40 hotels. more »

    Share Price (Full)
    351.5p
    Change
    0.0  0.0%
    P/E (fwd)
    6.7
    Yield (fwd)
    4.1
    Mkt Cap (£m)
    146

    Whitbread PLC is engaged in the operation of a hotels and restaurants business and a coffee shop business. The Company operates in two segments: Hotels & Restaurants and Costa. Hotels & Restaurants provide services in relation to accommodation and food. Costa generates income from the operation of its branded, owned and franchised coffee outlets. The Company’s brands include Premier Inn, Costa, Beefeater Grill, Brewers Fayre, Table Table and Taybarns. Premier Inn is a digital retailer with approximately 83% of all its bookings made digitally. The Company’s subsidiaries include Whitbread Group PLC, Premier Inn Hotels Limited, Whitbread Restaurants Limited, Premier Inn Limited, Costa Limited, Yueda Costa (Shanghai) Food & Beverage Management Company Limited, Coffeeheaven International Limited and Coffee Nation Limited. more »

    Share Price (Full)
    4055p
    Change
    155.0  4.0%
    P/E (fwd)
    21.1
    Yield (fwd)
    1.7
    Mkt Cap (£m)
    7,358

    InterContinental Hotels Group PLC (IHG) is a global hotel company, operating nine brands internationally. IHG is the holding company. IHG’s hotels brands include InterContinental Hotels & Resorts, Crowne Plaza Hotels & Resorts, Hotel Indigo, Holiday Inn and Holiday Inn Club Vacations, Holiday Inn Express, Holiday Inn Resort, Staybridge Suites, Candlewood Suites and EVEN Hotels. It has four geographical segments: Americas, Europe, Asia, Middle East and Africa (AMEA), and Greater China. The Company runs the hotels in three ways: franchised, managed and owned. In March 2014, the Company announced that it has completed the sale of InterContinental Mark Hopkins San Francisco (the Hotel) to a joint venture between affiliates of Woodridge Capital Partners and funds managed by Oaktree Capital Management L.P. In April 2014, IHG announced the opening of the first Holiday Inn Express hotel in the Condado district of San Juan, Puerto Rico. more »

    Share Price (Full)
    1922p
    Change
    17.0  0.9%
    P/E (fwd)
    20.2
    Yield (fwd)
    2.4
    Mkt Cap (£m)
    4,922



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