PPHE’s trading update confirmed that trading was in line with expectations and that the new year had started well. This is reassuring news and it appears that the business performance has acclerated in Q4, although the comparison is distorted by the Croatian acquisition and new openings. Nevertheless, we are encouraged. The stock continues to trade at a significant discount to the real value of the assets, a value to be further boosted when the new hotels open, and we expect the discount to narrow.
The results are complicated by the consolidation of the Croatian operation, but the underlying trends look positive with a pickup in RevPAR on the back of improving occupancy. The impact of new hotel openings in Q4 and in 2017 is likely to be clearer with the final results
We have not changed our forecasts as the company has confirmed trading is in line. We are reassured by the like for like trends, and the weakness of the pound is helping with inbound tourism to London as well as PPHE’s enhanced position in the London conference market.
On most metrics, the group remains at a significant discount to peers, and out of line with the past and forecast performance. At the interims, the group reported the latest property valuation, and the adjusted book value is now pro-forma c.£17/share on our estimates.
The main risk, now dissipating, was the new openings, but the London market should benefit from weak sterling. The balance sheet is indebted, but the average debt maturity is now 9 years which gives it a more solid balance sheet structure. As a major property owner, we expect some level of gearing.
PPHE has a great track record and a development pipeline which will further increase the real asset value over the existing substantial premium to the share price. UK property stocks are currently trading at discounts to book, but the asset values here are growing faster and the starting discount is higher. We do not expect this to continue.