PPHE Group (LSE:PPH) http://www.pphe.com/
Current price 236p, Full LSE Main Market listing. Market cap £97 million. Annual dividend 12p, yield 5%.
PPHE Group operate 4* hotels in London and European hub cities. These are run through three different brands, Park Plaza, Art'Otel and Arena Turist.
Investment thesis:
> Income - Current yield ~5%
> Value - Significant discount to peers IHG, WTB, MLC (on P/E, Price to cashflow, yield and price to book)
> Growth - Improving trading conditions and growth in store, Quarterly growth, new hotels in pipeline
> Board looking to unlock equity in properties
> Resilience of the travel and leisure sector in 2012
Valuation:
The main basis for my valuation is based on comparison to peers within the hotel/ leisure sector. Intercontinental Hotels (IHG), Whitbread (WTB) and Millenium and Copthorne (MLC).
Company P/E Yield (%) Price to cashflow Price to book
| Company | P/E | Yield (%) | Price to cashflow | Price to book |
| IHG | 17.94 | 2.56 | 8.68 | 8.68 |
| WTB | 15.98 | 2.26 | 10.04 | 3.07 |
| MLC | 14.27 | 2.47 | 10.57 | 0.76 |
| PPH | 8.01 | 5.05 | 3.01 | 0.45 |
As the data above shows, PPH is significantly undervalued compared to its peers.
If yield was to normalise to around 3% this would see the share price have to rise to around 400p.
Again normalisation of the p/e to around the industry average 12-14x earnings would see the share price appreciate to 364-420p.
Yet whilst these comparisons are quite crude they give us a good benchmark with regard to the sector itself and other London listed hotel groups.
Of concern to some investors is the level of the debt that PPHE Group carries. Currently PPHE has around €477mil of debt, yet is well within its covenants. Net equity gives a better view of the situation, with assets - liabilities giving shareholder equity of €200 mil or approximately 395 pence per share. NAV per share as of June 2012 was €6.07 or 494 pence per share.
Looking forward the business looks healthy and is growing rapidly. PPH continually posts quarter on quarter growth. Additionally trading has been ahead of expectations with the company stating in its November IMS:
"Our performance to 30 September 2012 has been encouraging and with the significant renovations completed earlier this year at several of our hotels, we anticipate further performance improvements ahead. As a result, the Board expects the full year results to be ahead of Company expectations."
The jewel in the crown for PPHE Group are the London hotels, the NAV update in June 2012 did not include a revaluation of the London hotels which is expected to come. Management have also indicated that they will look towards deals as a way of realising value within the asset base and increasing shareholder value.
Nice 6 month uptrend --- PPH in play:
Conclusion:
I do not feel that the discount to the sector is justified. Whilst debt levels are high, this has been utilised to the PPHE's advantage for rapid expansion. Debt is well within covenants and trading conditions are excellent. PPHE Group's hotels are relatively insulated from the European crisis given their prime locations, London and other European hubs.
Not only does PPHE look cheap on its own, the discount to peers on a variety of metrics reinforces the value on offer in PPH. Over the next 3-6 months I am bullish on the stock. Technically the stock is in an uptrend too which should lend to some positive momentum.
Investec rates the stock a buy, with a 330p price target.
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PPHE Hotel Group Limited through its subsidiaries, jointly controlled entities and associates, owns, leases, operates, franchises and develops full service upscale and lifestyle hotels in cities and regional centers in Europe. The majority of the Company’s hotels operate under two brands, Park Plaza Hotels & Resorts and art’otel. The Company has a license from Carlson, which is a global privately owned hospitality and travel company, 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. It has a minority ownership interest in the Arenaturist group, which is a hospitality company. Its portfolio of owned, leased, managed and franchised hotels consists of 38 hotels offering a total of 8,376 rooms. In June 2012, the Company’s wholly owned subsidiary completed the purchase of the property at 628 Western Avenue, Park Royal, London W3. more »
Whitbread PLC is engaged in the operation of a hotels and restaurants business and a coffee shop business. The Company operates two segments: Hotels & Restaurants and Costa segment. As of March 1, 2012, there were 619 hotels (47,274 rooms) in the United Kingdom and 387 restaurants, of which are adjacent to a Premier Inn. Costa stores are found in 25 countries overseas and serve more than 900 cups of coffee across the world every minute. During the fiscal year ended March 1, 2012, it opened 4,430 new rooms (31 hotels), 12 restaurants, over 330 Costa stores worldwide and had 1,192 Costa Express machines. It operates Premier Inn, a budget hotel chain, which operated 620 hotels with 47,429 rooms in the United Kingdom and Ireland, and 1,296 hotels overseas. The Company's restaurant brands include Beefeater Grill, Brewers Fayre, Table Table and Taybarns. As of March 1, 2012, it operated 387 restaurants in the United Kingdom, and 2,203 Costa stores worldwide. more »
InterContinental Hotels Group PLC (IHG) is a global hotel company, operating seven brands internationally. IHG is the holding company. The principal activities of the Company are in hotels and resorts, with franchising, management, ownership and leasehold interests in over 4,400 establishments, with more than 658,000 guest rooms in over 100 countries and territories worldwide. IHG’s hotels brands include InterContinental Hotels & Resorts, Crowne Plaza Hotels & Resorts, Hotel Indigo, Holiday Inn and Holiday Inn Club Vacations, Holiday Inn Express, Staybridge Suites, Candlewood Suites and Priority Club Rewards. It has four geographical segments: Americas, Europe, Asia, Middle East and Africa, and Greater China. As of December 31, 2011, the pipeline totalled 1,144 hotels (180,484 rooms). In March 2012, it announced the launch of HUALUXE Hotels and Resorts in China. During the year ended 31 December 2011, it sold four hotels, three in the Americas region and one in the AMEA region. more »
