PPHE has arguably trumped its strong H117 results by highlighting its “unprecedented financial position,” which provides exciting scope for management with an enviable development record. Excess liquidity is substantial (we estimate £250+m cash after Waterloo sale backed by a valuation surplus) and its deployment is actively under review. Meanwhile impressive +23% H117 EBITDA despite headwinds and a positive outlook have led us to raise forecasts, if marginally. Heartland London recovered well, with key openings soon making their mark. A meagre rating belies PPHE’s proven profit delivery and asset backing (fair value c £18/share).
The half saw strong underlying growth across the board (double-digit but for renovation impact in otherwise buoyant Netherlands). Admittedly, London, PPHE’s main profit centre, was flattered by a weak comparative after the Paris attacks (core London RevPAR up c 10% against down 5% in H116). By contrast, Croatia flourished with +19% like-for-like and sterling revenue up by a third in June, the only high-season month in the period. EBITDA progress was more uneven as core London (+c 15%) and Netherlands (local currency -8%) were curbed, respectively, by cost pressures (payroll and business rates) and renovation at the flagship Victoria Amsterdam. Whereas Croatia was down owing to first inclusion of loss-making Q1, Germany and Hungary EBITDA was boosted by lower rent after Berlin deals.
Our unchanged, broadly positive assumptions for this year and next allow a minor upgrade to forecasts, ie revenue and EBITDA, respectively, 3% and £4m in 2017 and 5% and £3m in 2018. As detailed on page 2, in London we see slower growth on more normal comparatives and persistent cost pressures (EBITDA margin down), sustained buoyancy in Croatia, renovation impact in the Netherlands and a positive first contribution from PP Waterloo and Park Royal, now fully operational. Despite caution ahead of its key trading period and uncertain times, we are buoyed by general momentum and payoff from recent transformative investments.
Current record share price strength (up 28% since end July) looks at last to be starting to recognise PPHE’s investment case. Recent revaluation to include London openings accentuated the discount to real value (adjustment of c 1,340p/share to reported NAV, pre-Waterloo sale). At 8.8x 2018e EV/EBITDA, the rating is low against an average of c 10x 2018e for branded European peers.