IMS confirmation of momentum is reassuring in the face of headwinds, notably the timing of Easter, significant renovations and the threat of terrorism. Encouragingly, a focus on room rate (+5% in Q1) rather than occupancy (-500 bps in Q1) should allow PPHE to mitigate cost pressures. Transformative investment, facilitated by further long-term re-financing, remains on track, as does the consolidation of its Croatian resort businesses (forecasts to be updated once financials are fully disclosed).
PPHE is on course to meet current year expectations. Q1 RevPAR decline of 2% may pale by comparison with currency-boosted +12% in 2015 but should not surprise, given well-documented challenges. In particular, STR Global has reported a 4% fall in Q1 RevPAR in the London market, PPHE’s principal profit source. Importantly, room rate there was not unduly sacrificed as in the wake of terrorism tourists tend to avoid a market regardless of price and experience suggests stabilisation within three months. Moreover, the first quarter is the company’s least representative. On a more positive note, the Netherlands (17% of 2015 EBITDA) continues to steal the show with double-digit yield gain, improving even on its own demanding comparative.
Management gives further reassurance that its planned investment (over 1,000 new rooms by the end of Q3) is on schedule and that its partnership with Carlson, eg branding and distribution, should not be affected by Carlson’s proposed sale of its hotels to HNA Tourism Group.
Asset considerations apart, at 9.2x 2016e EV/EBITDA, PPHE’s trading valuation is similar to the average for branded European peers.