PPHE Hotel Group Ltd (LON:PPH), the asset-backed, London-focused hotel operator, has announced its Q4 trading update, which confirms the strong trends at the interim results and Q3 update. We revised up with the interims, and are maintaining our full year forecasts. The company looks indebted relative to income, but this reflects a major development pipeline in progress, where the assets have yet to contribute income. The shares trade at a substantial discount to book value as adjusted for the real value of the assets.
► Revenues growing: Total revenue increased by c.12% for the full year, which is better than our 10% estimate, but with results in a month’s time, we are not revising forecasts. The company noted that full year results should be in line with internal expectations; and fx boosted Q4 and may not similarly help 2016.
► RevPAR strong: Group RevPAR grew by 12.1% to €127.3 (2014: €113.6). This growth was driven by an 11.3% increase in average room rate to €150.9 (2014: €135.6) and 60 bps increase in occupancy to 84.3% (2014: 83.7%). The RevPAR increase for Q3 was identical, although note the weak Euro helped in Q4.
► Valuation: The valuation still looks modest in the context of the real value of the assets which we believe are significantly above book value. On P/E and EV/EBITDA, the group continues to trade at a significant discount to sector majors in spite of a better growth pipeline.
► Risks: Some investors consider the group’s drawbacks to be an apparent high debt level relative to current income, limited liquidity, and a founder controlled business. In fact, the founders have delivered strong growth and are reluctant to issue equity at a discount, and the debt is readily manageable.
► Investment summary: PPHE Hotel Group Ltd has extremely strong asset backing which is a strong reason to own the shares. The company intends to report in sterling from 2016 which will help transparency, an indication that management are committed to shareholders. A side effect is that FX could be a benefit again to reported numbers this year if sterling weakens. The shares remain attractive.
