PPHE’s FY19 results were in line with our expectations, with RevPAR outperformance in most markets in which it competes. FY20 looks a more challenging year due to the threats to travel from the outbreak of the coronavirus, as well as tough comparatives. The company has a history of outperforming its peers in good and tough markets and has the benefit of maturing room stock in key markets. In the long term, the development pipeline continues to look promising. We downgrade our EBITDA forecast for FY20 by 14% due to the uncertainty in this environment. The shares are trading at a discount to the reported EPRA NAV of c 50%.
FY19 was a good year financially and operationally with revenue growth of 5.2% and EBITDA growth of 3.4% on a like-for-like basis. The key contributors to growth were the UK and the Netherlands, with outperformance versus the broader market and peers as they continued to benefit from the investment programme from FY17– 19. Germany also performed well, including some benefit from conferences, which presents a tough comparative for FY20. As expected, Croatia fared less well due to increased competition from other Mediterranean countries.
In the face of a more challenging backdrop due to the outbreak of coronavirus, we downgrade our EBITDA forecast for FY20 by c 14%. Our key assumption is that occupancy falls by 10 percentage points in the key operating countries, excluding Croatia. This produces RevPAR declines similar to those experienced during FY09, which was affected by the financial crisis and the outbreak of swine flu (analysed later). We rationalise this by assuming a shorter but deeper impact on travel in FY20 than FY09. In addition, we assume 30–40% of the lost revenue drops through to declines in EBITDA. For FY21, we assume that occupancy and operational gearing reverts, producing revenue growth of c 12% and EBITDA growth of c 15%.
The share price performed well through the early news around the outbreak of coronavirus, before peaking at 2,140p on 20 February 2020, but the price has since fallen by 40% to 1,286p. As a result, the shares trade at a discount of 50% to the EPRA NAV per share of £25.46 at 31 December 2019, which should provide some support in the face of downgrades from the current economic uncertainty. On our downgraded forecasts, the EV/EBITDA multiples for FY20 and FY21 are 10.6x and 9.6x, respectively. The average EV/EBITDA multiple has been 8.2x since FY10.