PPHE share price: £13.80
Market cap: £577m
I recently had the privilege of speaking with Daniel Kos, Chief Financial Officer of PPHE Hotel (LON:PPH).
PPHE Hotels are most closely associated with the Park Plaza name but their portfolio is much broader than that. It includes art’otel in London and across Europe, and they have a strategic partnership with the Radisson group (who own the Park Plaza brand).
art'otel Hoxton. Source: booking.com
Although I’m not a specialist when it comes to property shares, I do like to follow the sector selectively: REITs, housebuilders and hotels will all occasionally get a review from me.
PPHE has interested me for some time as the Park Plaza brand is one that I have some familiarity with, and the shares have tended to trade at a steep discount to what the company says its hotels are worth.
The question of what a hotel is worth should not be all that complicated, at least in my mind! If a company’s hotels are objectively worth X, but its market cap says that they are only worth half of X, then we should be looking at a clean bargain and a good investment opportunity.
But it’s not quite as simple as that. The reality is that PPHE’s accounts are complicated, whether we are talking about the company’s earnings or the value of its properties. So I’m very grateful to Mr Kos for taking the time out of his busy schedule to help explain things to me.
Introduction
Mr. Kos started out our conversation by explaining to me that, in his words, PPHE is “not a typical company”.
According to Mr. Kos, a typical company (in this sector) would raise some equity using its own shares, buy assets with the funds raised, refinance the assets, and then look to repeat it.
PPHE does not do this.
The reason is that, in the view of the company, “the stock market is closed”, i.e. their stock is simply not trading at a level where they would be interested to raise equity. This is the view of their major shareholders. So PPHE instead relies on debt and other forms of financing.
For context, the company’s two major shareholders…
