PPHE delivered its 2019 results and it was another delivery of a good year.
Like for like revenue increased 5.2% to £355.8m and overall revenue went up 4.7% to £357.7m.
Profit before tax fell from £46.4m to £38.5m but that last year’s figures included a £20.3m revaluation gain. This reflects the reality whereby PPHE has an ongoing operational business with periodic big gains from its property business.
I am not generally a fan of normalised profits which PPHE does produce. I think too often it is used to exclude genuine costs or flatter results. That said PPHE’s reconciliation of GAAP to normalised profits is much more sensible than most and in this scenario PPHE sees the normalised profits as moving from £37.7m to £40.7m. A 7.8% improvement.
Within the business itself the company improved its revenue per room by 5.1%. Reflecting an average increase in room rates of 3.4% and an increase in occupancy of 1.3%.
Cost management continues to be an issue as does the supply of labour and PPHE has begun initiatives to provide housing for a limited number of its employees. This "looking after its staff", its in house training scheme and its ability to move people from one hotel to another given geographical concentration and single ownership are all advantages to PPHE in the current market.
Historically PPHE has always traded at a significant discount to its EPRA NAV which is £25.46 per share at YE. As opposed to the current share price of £16.10. This discount is in my opinion an overreaction to the Coronavirus, but undoubtedly an EPRA valuation today would not give the same valuation.
In 2019 the company spent £72m in Capex investment and is talking of £300m to reflect its New York, London Hoxton, London Battersea and potential new London Waterloo hotels.
Whilst the Operations are going well in the UK, Germany and Amsterdam. The Croatian operation is currently under competitive pressure and is perhaps the most prone to cancellations or non booking as it is aimed more at the leisure market.
The board has proposed a 20p a share dividend, which increases the annual dividend by 5.7%. However PPHE is significantly indebted and cash management will be key to ensure survival should the Coronavirus become more significant and reduce the demand for its hotel properties. That being said the current loan to valuation is between 50-65% depending on location so it should not be quickly called into question.
At this time I remain positive about PPHE and its overall positioning. At this price should we get better clarity on Coronavirus and a positive outlook on its potential impact I would look to be a buyer.
Based on the results JP Morgan put a price target of £22 on the shares. Before factoring in a Coronavirus effect.