Coming off a strong 2017 financial year marked by several milestones, international hotelier PPHE Hotel Group (LSE:PPH) has made a decent start to the new fiscal year, with results showing revenues climbed steadily amid a soft London market. The UK-listed company is also making strong progress on a renovation programme which should lift margins further.
With Brexit on the horizon, we expect the pound to weaken against the euro and many other currencies. This will act as a tailwind on a couple of fronts. This is as the level of inbound visitors to the UK increases with it becoming a more affordable destination, and as the earnings from PPHE’s offshore hotel operations provide a translation kick.
PPHE has an exclusive licence from Radisson Hotel Group to develop and operate Park Plaza Hotels & Resorts in Europe, the Middle East and Africa. The art’otel brand is fully owned by the company.
PPHE also has a controlling 52 per cent interest in the Arena Hospitality Group, one of Croatia‘s best-known hospitality outfits. The group has 39 hotels and nearly 9000 rooms.
Full-year revenues for 2017 were £325.1 million ($581 million), with EBITDA (earnings before interest, taxes, depreciation, and amortisation) of £107.3 million, 14 per cent ahead of the prior year.
Higher occupancy rates
A first quarter trading update showed that total revenues for the first three months of the year were up 2.9 per cent year-on-year to £59.4 million on the back of increased occupancy figures in the UK, Croatia and Germany. The recent opening of the Park Plaza London Park Royal also boosted numbers, although the top line was dragged down by the Netherlands due to renovations of the Park Plaza Victoria Amsterdam hotel.
In the UK, a recovery in the pound made for a slightly softer London market, which meant the overall average room rate decreased by 2.8 per cent to £108.9. Prudent pricing, though, saw PPHE lift occupancy rates by 240 basis points year-on-year to 73.5 per cent for the entire group. This figure is impressive considering most of the company’s Croatian properties are closed during the first quarter due to seasonality.
Revenue per available room increased by 0.6 per cent year on year to £80.1 while on a like-for-like basis, the rate was up by 1.4 per cent to £80.7.
We believe PPHE’s outlook is positive, with several of the company’s renovation projects progressing well. The Netherlands’ renovations are expected to be completed within the first half. The Park Plaza Sherlock Holmes London renovation is well under way and is expected to be completed in phases, with the final completion planned for early 2019.
In Croatia, The Park Plaza Arena hotel is nearing completion of its first glamping (glamour camping) offering. Glamping is becoming increasingly popular and we believe it will boost occupancy rates down the line.
As renovations complete and new hotels mature, we should see revenues and profits expand. PPHE appears keenly focused on maintaining the quality of its hotels and is set to continue renovation projects in the Netherlands and in Croatia. This will help the company continue to be competitive in the increasingly transparent hotel market. On the valuation front, the company’s shares are trading at a forecast price-earnings ratio of 20 times earnings for 2018 with a 2 per cent yield.
Greg Smith is the head of research at investment research and funds management house Fat Prophets. For a free trial of Fat Prophets’ daily market commentary please click here.
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