The travel bans and quarantines due to COVID-19 have had a significant impact on PPHE since mid-March and are likely to continue to do so. We now expect a deeper and longer downturn than previously and a slower recovery, so we reduce our forecasts for occupancy for FY20, while holding our prior EBITDA margin assumptions reflecting cost cutting and a high level of government support on key costs. We downgrade FY20 revenue by c 32% and EBITDA by c 29%. The shares are trading at a c 54% discount to the last-quoted EPRA NAV of 2,546p per share.
While revenue increased by 8.7% in the first two months of the year, the travel bans and quarantines, full and partial, as a result of the COVID-19 pandemic led to total revenue falling by c 60% in March and by c 18% in Q120. This was driven by a large reduction in occupancy from 76.4% in Q119 to 58.7%, while the average room rate was down by just 0.3% on a l-f-l basis, in line with management’s policy of wishing to hold yield at the expense of occupancy. Management is managing costs aggressively with a view to protecting profitability and cash flow generation, and it should be a beneficiary of government financial support for key cost items. It believes the balance sheet is robust enough to withstand a significant decrease in profitability in FY20, but the outlook is too uncertain to provide guidance.
We downgrade our EBITDA forecast for FY20 by c 29%, which reflects a more aggressive reduction in occupancy to 55% for the non-Croatian operations, and our assumption that the summer-focused Croatian operations will trade for roughly half of its key selling season. These follow from expectations of a longer and deeper economic downturn than previously and a slower recovery. We retain our existing EBITDA margin assumptions for FY20 given the scale of cost cutting and government subsidies for staff costs etc, as the latter were absent in prior economic downturns.
At 1,160p the share price has performed well in recent weeks having been weak since February. On our new forecasts, the EV/EBITDA multiples for FY20 and FY21 are 14.4x and 9.0x, respectively. These compare with the average since FY10 of 8.2x, and the peak in FY09 of 19.3x. The share price is trading at a discount of c 54% to the last-quoted EPRA NAV of 2,546p per share at the end of FY19.