PPHE Hotel Group — Leisure demand recovering

PPHE Hotel Group (LN: PPH)

Last close As at 20/11/2024

1,070.00

0.00 (0.00%)

Market capitalisation

455m

More on this equity

Research: Consumer

PPHE Hotel Group — Leisure demand recovering

PPHE’s H120 results, more notably those from Q220, reflect the full impact of COVID-19 lockdowns on demand, and the substantial progress that management has made in managing the cost base and cash burn. Demand from the leisure sector has returned relatively strongly but the rate of potential recovery in business travel remains uncertain. In recent weeks, the group’s average occupancy level of c 35% is above the 30% required for operational break-even with government support for jobs and business rates, but below the c 40% required in the absence of government support.

Russell Pointon

Written by

Russell Pointon

Director of Content, Consumer and Media

Consumer

PPHE Hotel Group

Leisure demand recovering

Travel & leisure

QuickView

4 September 2020

Price

1,080p

Market cap

£459m

Share price graph

Share details

Code

PPH

Listing

LSE

Shares in issue

42.5m

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.

Bull

Prime locations in key cities that have typically rebounded quickly.

Present in the whole value chain.

Management confident in liquidity position.

Bear

Uncertain outlook for business travel and leisure vulnerable to further local or national lockdowns.

Recovery in key city centres post COVID may be different from prior downturns.

EPRA NAV liable to potential downgrade on external revaluation.

Analysts

Russell Pointon

+44 (0)20 3077 5700

Sara Welford

+44 (0)20 3077 5700

PPHE’s H120 results, more notably those from Q220, reflect the full impact of COVID-19 lockdowns on demand, and the substantial progress that management has made in managing the cost base and cash burn. Demand from the leisure sector has returned relatively strongly but the rate of potential recovery in business travel remains uncertain. In recent weeks, the group’s average occupancy level of c 35% is above the 30% required for operational break-even with government support for jobs and business rates, but below the c 40% required in the absence of government support.

Strong costs and cash management

Group revenue fell by 89% in Q220 as occupancy declined to 10.7%, and the rate-focused strategy limited average room rate decline to 25%. The EBITDA loss of £6.8m reflects the fact that cash costs (revenue less EBITDA) of £17.2m were very well controlled vs Q219 costs of £59m. More favourable working capital, a focus on emergency maintenance capex and new funding led to a modest reduction in the cash position to £137m from £153m at the end of FY19. New project-specific funding and a term facility lead management to believe that PPHE has sufficient liquidity, with testing of debt service covenants delayed until summer 2021.

Demand returning gradually

Post lockdown, there have been steady increases in occupancy (c 35% occupancy more recently), notably from mostly domestic leisure and during weekends (80–90% occupancy) and a younger demographic with a focus on price and short-term booking patterns. In the absence of government financial support, management estimates that occupancy of c 40% would be required to achieve operating cash break-even. It is reassuring that PPHE continues to outperform its peers in its largest markets as it did before the lockdowns. Management continues to introduce new contactless and online initiatives to help increase customer confidence in visiting hotels.

Valuation: 57% discount to EPRA NAV

The shares are trading at a discount of 57% to EPRA NAV of 2,530p/share (2,546p in December 2019), albeit this has not been adjusted for any potential change in valuation due to COVID. Management believes a revaluation would not truly represent the underlying value of the assets and there is a lack of transaction evidence to support an accurate revaluation. It estimates that each 1pp reduction in the valuation of group properties would reduce the NAV by 38p/share, ie by 1.5%, and notes that some peers have recently reduced estimates of their own valuations by 3.3–11.7%.

Consensus estimates

Year
end

Revenue
(£m)

EBITDA
(£m)

EPS
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/18

341.5

113.2

116.0

35.0

9.3

3.2

12/19

357.7

122.9

86.1

17.0

12.5

1.6

12/20e

166.4

48.0

(48.3)

0.0

N/A

N/A

12/21e

269.3

77.8

19.5

25.3

55.5

2.3

Source: Refinitiv

EDISON QUICKVIEWS ARE NORMALLY ONE OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.

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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

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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

1185 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 prepared and issued by Edison. 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

1185 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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