PPHE Checks Into London Hotels

11th Apr '16 by Fat Prophets

4 comments 4824 reads

PPHE Hotel Group saw reported revenue increase by 11.8% in 2015 to €302.5m while normalised EPS jumped by a quarter to €0.99. The profit margin increased due to stronger room rates and an improvement in hotel occupancy. With an ambitious London expansion plan through to 2019 the group looks well placed.

At the end of 2015 PPHE Hotel Group operated 38 Hotels in 6 countries with 8,348 rooms. While the UK accounted for 2,791 rooms it generated two-thirds of the group’s EBITDA profit during the year.

PPHE Hotel Group’s expansion plans are focused on the UK with 1,402 rooms planned out of a total pipeline of 1,579 rooms. Given the importance of the UK the company is set to change its reporting currency to sterling going forward.

PPHE profile in 2015

Source: PPHE Hotel Group investor presentation

Within the UK the main area of focus for PPHE is London with 2,300 rooms in operation in 2015. This is expected to increase to 3,100 rooms in 2016 and will make PPHE one of the largest hotel operators in the capital.

Two new hotels are set to open in London this year in the form of Park Plaza Park Royal and Park Plaza Waterloo. An extension and reconfiguration of Park Plaza Riverbank will also complete in 2016.

PPHE’s London focus: Rooms in 2015 and projected in 2016

Source: PPHE Hotel Group

Looking out to 2019 the group expects to open two new art’otel’s in London – in Hoxton and in Battersea power station – with 512 rooms. However, these will not be fully owned unlike the London Park Plaza hotels opening this year.

London generated over half of PPHE Hotel Group’s profit last year and its importance is only going to increase in the coming years. The only other new hotel set to open through to 2019 is in Nuremberg, Germany.

PPHE’s hotel brands and pipeline

Source: PPHE investor update

London is a leading global city with an economy that is diversified across a range of sectors. The recent fall in the value of sterling will help to encourage more tourists to visit and the opening of Crossrail in 2018 will improve transport links.

The accountancy group PwC forecasts that revenue per available room in London will increase by 2.3% in 2016. This is driven by am increase in the average…

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ls2g08

11th Apr '16

I was close to buying this back in Jan 2013, however I thought the debt levels, particularly when compared to other hoteliers was too high. What a shame, I missed out on nearly 400% gains!

PhilipHanson

The key attraction for me with PPHE Hotel (LON:PPH) is the real value of the hotel assets being substantially more than the book cost. Finncap estimates the fair value is around £15.37 per share, although they have then applied a 20% tax rate and a 20% risk factor to come up with their price target of £10.80.

The business is wonderfully run as can be seen from the non-financial KPI's above and is still cheap on an earnings basis irrespective of the asset upside I've mentioned above. It also pays a decent and well covered dividend while you wait for the asset valuation to be realised in the price. 2016 is a transformational year with significant expansion of the London portfolio in particular.

Recent announcements include the buying out of the JV partner in Croatia and the refinancing of Park Plaza Victoria (to be followed by other London hotels), substantially reducing interest costs and freeing up capital for continued investment and potentially returns to shareholders in due course.

Key risks include economic recession (travel is usually the first and one of the hardest hit industries) and a significant terror attack in London which would impact demand and short term sentiment significantly.

Andrew L

ragehammer - I agree the Croatian deal looks interesting. It should enhance earnings per share and the growth prospects.

Also the refinancing of Park Plaza Victoria was interesting. This was done at a 10-year fixed rate of 3.41% (secured). What is notable is that as part of the financing this one hotel was valued at £161.5m. it is likely that the refinancing was done at improved interest rates otherwise why do it? Other motivations might include to diversify the lenders to the group.

The 30th March update also said that PPHE is looking at financing proposals for other London hotels. So the refinancing process should help bring down the cost of debt across the group.

gus 1065

£PPH was also one of the stocks discussed in a positive light on Paul's recent interview with Francis Kershaw.

Here's the link:-

http://qualitysmallcaps.co.uk/investor-interviews/...

PPHE checks into London hotels

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