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Fluence Corporation — Delivering on expectations

Fluence Corporation — Delivering on expectations

Q3 saw Fluence delivering on expectations. It signed its first multiproduct Aspiral deal in China ($45m), reported in-line revenue (up 140% y-o-y) and held FY18 gross profit guidance. An equity offer raising c $23m (net) should address any funding concerns. Capital raising aside, our forecasts are unchanged; the company still has to deliver a strong Q4, but following the China deal, confidence in the long-term story should be growing.

Analyst avatar placeholder

Written by

Fluence Corporation

Delivering on expectations

Q318 results, capital raising

General industrials

2 November 2018

Price

A$0.42

Market cap

A$226m

US$/A$0.709

Estimated net cash (US$m) at end-FY18

29

Shares in issue

538m

Free float

60%

Code

FLC

Primary exchange

ASX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.6

11.7

(32.3)

Rel (local)

10.0

19.9

(31.4)

52-week high/low

A$0.7

A$0.4

Business description

Fluence is a global supplier of water and wastewater treatment solutions. Its decentralised products provide municipal customers with ‘plug and play’ solutions that are both quicker to deploy and substantially cheaper than traditional alternatives.

Next events

FY18 business update

January 2019

Analysts

Dan Gardiner

+44 (0)20 3077 5700

Dario Carradori

+44 (0)20 3077 5700

Graeme Moyse

+44 (0)20 3077 5700

Fluence Corporation is a research client of Edison Investment Research Limited

Q3 saw Fluence delivering on expectations. It signed its first multiproduct Aspiral deal in China ($45m), reported in-line revenue (up 140% y-o-y) and held FY18 gross profit guidance. An equity offer raising c $23m (net) should address any funding concerns. Capital raising aside, our forecasts are unchanged; the company still has to deliver a strong Q4, but following the China deal, confidence in the long-term story should be growing.

Year end

Revenue (US$m)

EBITDA* (US$m)

EPS*
(US$)

EV/revenue
(x)

EV/EBITDA
(x)

P/E
(x)

12/17

33.2

(23.6)

(0.07)

4.0

N/A

N/A

12/18e

107.3

(13.4)

(0.03)

1.2

N/A

N/A

12/19e

154.0

(2.0)

(0.01)

0.9

N/A

N/A

12/20e

194.4

11.9

0.02

0.7

11.1

16.2

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

Growth trajectory on track

The most significant development for long-term prospects during Q3 was the Aspiral deal signed with ITEST in China. Aside from generating at least $45m of revenue over the next three years, it highlights Aspiral’s credibility and the potential of the Chinese market (see our note, China contract catalyst?). Reported Q3 revenue of $29m was up 140% y-o-y and in line with our forecast ($28.7m). FY18 guidance of $105m, the bottom end of its previous $105–115m range, implies $43.2m of revenue in Q4. With $33m of contracted revenue due to be recognised, seasonality and healthy ‘turns’ activity (see analysis overleaf), we remain comfortable with our $45m ($107m) forecast. Gross profit guidance of $22–25m was maintained.

Capital raising addresses any funding concerns

On 30 October, management announced completion of an A$33.1m (US$23m) equity offering and expects to complete a share placement plan in late November. This looks a sensible pre-emptive move to address any lingering funding concerns from investors (see our initiation note, Time for better treatment?), particularly as H218 cash collection appears to be lagging our expectations. The proceeds, coupled with the receivables due in Q119e, should ensure cash resources do not dip below $22m; it now has comfortably enough cash to reach cash flow break-even, in our view.

Valuation: 70% upside on a DCF basis

At A$0.42 and assuming US$29m of net cash, Fluence’s current share price implies a US$132m enterprise valuation (EV) and 11x FY20e EV/EBITDA. Its capital raising and the recent market-wide de-rating have largely closed the discount to the sector multiple. However, a DCF approach that reflects the growth and margins of which we believe Fluence ultimately capable, suggests an A$0.71 valuation and 70% upside (adjusted from A$0.85 to reflect the additional shares). We believe it will take both time and execution against near-term goals to realise this upside, but the China deal illustrates the potential of its unique technology. With any lingering funding concerns now addressed, the rewards look substantially greater than the risks.

Q3 review: China, growth in decentralised solutions and cash

The most significant development during Q3 was undoubtedly the deal signed with ITEST in China. Aside from generating at least $45m of revenue over the next three years, this deal highlights the credibility of Fluence’s decentralised wastewater treatment product (Aspiral) in a large and highly cost-sensitive market with stringent wastewater effluent standards (Class 1A). We reviewed the full implications of this deal and the potential of the China market in our recent note, China contract catalyst? and in our initiation report. Ultimately, we see success here as probably the most significant driver of long-term value for investors. This deal illustrates that potential, further deals of this type and size could lead to large uplifts in long-term forecasts.

Elsewhere, progress was broadly in line with expectations, albeit demonstrating continuing growth in demand for Fluence’s decentralised solutions. The company announced a $7.6m Nirobox order in Egypt, the largest single order of this technology, the first Aspiral sales in the Philippines and the US and additional MABR orders to a system integrator (Orenco) in the US. In customised projects, it recognised the first revenue from San Quintin (as expected), PDVSA revenue was reported as on track and negotiations on the potentially large Africa deal ($100m+, not factored into forecasts) continue. Reported Q3 revenue of $29m was up 140% y-o-y and bang in line with our forecast ($28.7m) and the order book stood at $80m, at 20 October. The company unexpectedly reported its first positive quarter of EBITDA ($0.5m) due to the recognition of high margin revenue.

At $23m the Q3 cash position was marginally behind our model ($27m) due to cash collections. The company received $11m in cash from customers vs the $29m of revenue recognised and the $16m it had forecast. The majority of the difference between cash collected and revenue recognised (c $10m of the $18m) reflects the PDVSA contract (cash all received in advance) and the San Quintin contract. This was partially offset by lower than expected cash outgoings.

Q4 and FY18 guidance

Ultimately, the overall growth trajectory and longer-term prospects are the key drivers for investors. Nevertheless, meeting FY18 guidance is important – we believe that delivering on FY18 numbers and exiting the year with a $160m+ revenue run rate and profitable business could be a positive catalyst for the share price. The FY18 guidance of $105m, the bottom end of its previous $105–115m range, implies Q4 revenue of $43.2m (up 57% q-o-q doubling y-o-y). With $33m of contracted revenue due to be recognised (predominantly PDVSA and San Quintin) this implies just $10m of ‘turns’ revenue. In Q318, the company generated $13m of ‘turns’ revenue and in Q417 reported revenue rose c 70% q-o-q. We remain comfortable with our FY18e of $107m, implying $45m in Q4.

Cash flow guidance ($17m outflow of cash from operations) implies low cash collection again in Q4. We had been expecting modest positive cash flow as Nirobox inventory was monetised and the first major payment from San Quintin was received. This appears to be just a timing issue. The gap between cash collection and revenue recognition should close in Q119 as the PDVSA contract rolls off and the company receives its first San Quintin payment.

Capital raising

We forecast that the company will have raised total net proceeds of $23m by the time the share purchase plan (SPP) is completed on 21 November. Gross proceeds of A$33.1m (US$23m) have already been raised via the placement and these shares will begin trading on 5 November; the additional proceeds from the SPP will largely net off against fees. This should reassure investors that the company has sufficient capital to execute its current plan, particularly given the lag in cash collection highlighted above. In Time for better treatment? we highlighted that, even with flawless execution, cash resources were likely to trough at c $14m during FY19, below a level that the company saw as providing comfortable working capital headroom. Factoring these proceeds into our revised cash flow forecast, we see a cash minimum of $22m in Q219e, with the company sustainably cash flow positive beyond that point.

The capital raising is also significant for demonstrating the support of large existing shareholders, such as RSL, and attracting new US-based institutional shareholders on to the register. The company indicates it will begin planning for a dual listing in the US in 2019.

Forecasts: P&L unchanged, cuts to near-term cash flow offset by capital raising

We make no material changes to our P&L forecasts other than reflecting the 103m increase in the share count, which dilutes FY20e EPS by 17%. We reduce our FY18e cash flow forecasts to reflect lower cash collection in H218e, but longer-term cash generation assumptions are unchanged and the impact is offset by factoring in $23m from the capital raising.

Valuation: 70% upside on a DCF basis

At A$0.42 and assuming US$29m of net cash (FY18e), Fluence’s current share price implies a US$132m EV and 11x FY20e EV/EBITDA. Its capital raising and the recent market-wide de-rating have largely closed the rating discount to the sector. However, our P&L forecasts are unchanged and, therefore, a DCF approach that reflects the growth and margins of which we believe Fluence ultimately capable is also largely unchanged. Factoring in the dilution of the additional shares suggests this DCF-driven, per-share valuation falls by 16% from A$0.85 to A$0.71, but this still offers a very healthy 70% upside. We believe it will take both time and execution against near-term goals to realise this upside, but the China deal illustrates the potential of its unique technology. With any lingering concerns about funding now addressed, the rewards look substantially greater than the risks.

Exhibit 1: Financial summary

US$m

2016

2017

2018e

2019e

2020e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

0.8

33.2

107.3

154.0

194.4

Cost of Sales

(2.0)

(27.2)

(82.4)

(113.6)

(138.1)

Gross Profit

(1.2)

6.0

25.0

40.4

56.3

EBITDA

 

 

(8.8)

(23.6)

(13.4)

(2.0)

11.9

Operating Profit (before amort. and except).

 

(9.1)

(24.3)

(15.8)

(4.6)

9.3

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.1

(1.2)

(43.1)

0.0

0.0

Share-based payments

0.0

0.0

0.0

0.0

0.0

Reported operating profit

(9.1)

(25.4)

(58.9)

(4.6)

9.3

Net Interest

(0.0)

2.6

3.5

0.5

0.6

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

(9.1)

(21.7)

(12.3)

(4.2)

9.9

Profit Before Tax (reported)

 

 

(9.1)

(22.9)

(55.4)

(4.2)

9.9

Reported tax

0.0

(0.7)

0.3

0.0

0.0

Profit After Tax (norm)

(9.1)

(22.4)

(12.0)

(4.2)

9.9

Profit After Tax (reported)

(9.1)

(23.6)

(55.1)

(4.2)

9.9

Minority interests

0

0

0

0

0

Discontinued operations

0

0

0

0

0

Net income (normalised)

(9.1)

(22.4)

(12.0)

(4.2)

9.9

Net income (reported)

(9.1)

(23.6)

(55.1)

(4.2)

9.9

Average Number of Shares Outstanding (m)

214

320

477

538

538

EPS - basic normalised ($)

 

 

(0.04)

(0.07)

(0.03)

(0.01)

0.02

EPS - diluted normalised ($)

 

 

(0.04)

(0.07)

(0.03)

(0.01)

0.02

EPS - basic reported ($)

 

 

(0.04)

(0.07)

(0.12)

(0.01)

0.02

Dividend per share ($)

0

0

0

0

0

Revenue growth (%)

4.7

(10.4)

39.5

36.1

22.7

Gross Margin (%)

N/A

18.0

23.3

26.2

28.9

EBITDA Margin (%)

N/A

N/A

N/A

N/A

6.1

Normalised Operating Margin

N/A

N/A

N/A

N/A

4.8

BALANCE SHEET

Fixed Assets

 

 

3.2

72.7

24.8

26.2

27.6

Intangible Assets

2.1

60.2

5.8

5.8

5.8

Tangible Assets

1.0

7.1

13.9

15.3

16.7

Investments & other

0.1

5.5

5.0

5.0

5.0

Current Assets

 

 

24.4

131.9

148.6

140.9

160.3

Stocks

0.5

18.5

36.7

34.6

31.4

Debtors

0.7

26.7

71.0

69.2

75.4

Cash & cash equivalents

22.9

75.2

29.4

25.8

42.0

Other

0.3

11.5

11.4

11.4

11.4

Current Liabilities

 

 

(2.5)

(95.9)

(123.9)

(121.8)

(132.7)

Creditors

(1.4)

(27.8)

(49.0)

(49.4)

(62.9)

Tax and social security

0.0

(0.1)

(0.1)

(0.1)

(0.1)

Short term borrowings

0.0

(1.1)

(1.1)

(1.1)

(1.1)

Other

(1.1)

(66.9)

(73.8)

(71.2)

(68.7)

Long Term Liabilities

 

 

(1.0)

(5.1)

(11.0)

(11.0)

(11.0)

Long term borrowings

0.0

0.0

0.0

0.0

0.0

Other long term liabilities

(1.0)

(5.1)

(11.0)

(11.0)

(11.0)

Net Assets

 

 

24.1

103.6

38.4

34.3

44.1

Minority interests

0.0

0.2

0.1

0.1

0.1

Shareholders' equity

 

 

24.1

103.8

38.5

34.4

44.2

CASH FLOW

Op Cash Flow before WC and tax

(8.8)

(23.6)

(13.4)

(2.0)

11.9

Working capital

1.7

(4.8)

(45.5)

2.7

8.6

Exceptional & other

0.0

0.2

0.7

0.0

0.0

Tax

0.0

(0.9)

(0.3)

(0.4)

(0.4)

Net operating cash flow

 

 

(7.2)

(29.0)

(58.5)

0.2

20.1

Capex

(0.4)

(3.7)

(3.5)

(4.0)

(4.0)

Acquisitions/disposals

(1.0)

50.6

(1.8)

0.0

0.0

Net interest

0.0

0.5

2.7

0.1

0.2

Equity financing

22.9

31.3

23.3

0.0

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

Other

(0.2)

1.1

(3.7)

0.0

0.0

Net Cash Flow

14.2

50.8

(41.5)

(3.7)

16.3

Opening net debt/(cash)

 

 

(8.5)

(22.9)

(74.0)

(28.7)

(25.1)

FX

0.2

2.1

(3.7)

0.0

0.0

Other non-cash movements

0.0

(1.8)

0.0

0.0

0.0

Closing net debt/(cash)

 

 

(22.9)

(74.0)

(28.7)

(25.1)

(41.3)

Source: Fluence Corporation accounts, Edison Investment Research. Note: these financials assume 103m additional shares from the capital raising currently taking place and net proceeds of $23m.

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 Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Fluence Corporation 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 2018. “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.

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US

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Level 4, Office 1205

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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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, 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 Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Fluence Corporation 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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). 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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

295 Madison Avenue, 18th Floor

10017, New York

US

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Research: Consumer

PPHE Hotel Group — Keeping busy

Q318 has seen PPHE deliver (eg like-for-like RevPAR +6%) against a strong comparative. London, the company’s largest profit source, shared in a weather-led leisure market pick-up, while the Netherlands saw an early benefit from newly completed renovation at its flagship Victoria Amsterdam. Croatia, in its busiest period, topped a record 2017 despite the heatwave in northern Europe depressing demand. With current-year expectations unchanged ahead of key Q4 trading, longer-term growth is being driven by a £190m investment programme with key projects in the Netherlands and London well in hand. Expansion also remains on the cards, even if management is justifiably reluctant to pay up.

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