PPHE continues to please, with resilient H1 operating results complemented by first-time disclosure of EPRA reporting, which highlights its real estate business with EPRA NAV of £24.21 at June 2018, significantly ahead of the current share price. A fine record of value creation (21% CAGR in NAV over the seven years to end-2017, as newly presented) should underpin the company’s ability to leverage on its assets, in addition to reinvestment potential from £152m excess cash. H1 saw maintained like-for-like EBITDA against a “very strong” comparative in London, PPHE's major market, and renovations in the Netherlands. Encouraging trading in its seasonally stronger H2 supports guidance that 2018 expectations are unchanged. The interim dividend is raised by 45%.
Despite headwinds in PPHE’s two main first-half markets (London and Amsterdam), like-for-like EBITDA held steady on 4% higher revenue. While regional performance is not disclosed, we assume core London RevPAR to have matched the market, which was down 1% against recovery-led +10% buoyancy in H117. The 7% rise in UK EBITDA was driven by key 2017 openings, Waterloo and Park Royal, which are maturing well. Also as expected, the Netherlands shortfall (EBITDA down 5%) was due to renovations (estimated 7% rooms off with associated disruption), notably at flagship Victoria Amsterdam. By contrast, Croatia, usually lossmaking in H1, moved into profit, thanks to 10% higher revenue, boosted by a favourable calendar and investment. Germany and Hungary gained across the board (EBITDA up by 26%).
On stated investment plans, we remain comfortable with our H218 forecasts, bar slight adjustment to mix and net debt (raised 4%). EBITDA growth will be driven by investment in London, Croatia and Amsterdam, while H1 shows costs in core London can be contained (we still expect lower y-o-y margin). 2019 is less clear, as management focuses on exploiting flexibility post-Waterloo and Arena fund-raising.
While refinancing valuations had drawn attention to substantial hidden reserves, EPRA reporting should enhance recognition of PPHE’s investment case. EPRA NAV of £24.21 at June 2018 means an excess of c £680m over book value. Likely investment activity should accentuate this, given the strong development record. In operational terms, at 10x 2018e EV/EBITDA excluding the Waterloo finance lease, the rating compares well with an average of c 11x 2018e for branded European peers.