Although PPHE’s repeated ability to surprise is welcome, its announcement of a current year profit upgrade largely reflects postponed refurbishments and FX gain. We are however impressed by “strong” trading in Continental Europe as well as resilience in London, its major profit source, despite market slowdown. Ahead of interim results on 27 August, we are raising our forecast of 2015 EBITDA (our key metric) by €7.5m. Management’s increased margin confidence in the face of refurbishments and FX gain suggest a similar boost to EBITDA expectations next year.
As last December, this unscheduled update highlights the operational gearing of PPHE as the late deferral of renovations into 2016, allied with better than expected trading in Continental Europe, are driving a substantial boost to 2015 profit (we estimate +€7.5m EBITDA and +€6m PBT). Good profit conversion has derived in particular from the restoration of up to 5% of rooms in the company’s key London and Netherlands markets and from an outstanding performance in Amsterdam (likely double-digit RevPAR growth in H1). In contrast, London trading has been softer than we forecast with constant currency revenue up just 1% in H1, but at least ahead of a reportedly flat market.
The delay of refurbishments into 2016 should have minimal financial impact. Likely continued solid trading (we estimate RevPAR +1%) in both London and the Netherlands should allow overall EBITDA margin to be maintained despite the renovation programme, notably at the Sherlock Holmes in London and the Victoria in Amsterdam. Such buoyancy and favourable FX (£:€ 1.41) underpin the €5m rise in our EBITDA forecast. PPHE’s record of yield outperformance and the resilience of London’s hotel market may surprise, as may the company’s four openings (c 1000 rooms – London: Park Royal, Riverbank extension, Hercules; and Nuremberg).
Despite current share price strength, PPHE’s 2015e EV/EBITDA is low (9.2x) against an average of 11.2x for branded European peers. There is also considerable asset appeal as the last reported NAV of €7.80 per share (likely higher per the imminent interims), would be materially boosted if ‘fair value’ is taken into account, while potentially lucrative medium-term investment is well underway.