PPHE returns to profit

PPHE Hotel Group (PPH) has turned a profit for the first time since Covid-19 struck, with booking momentum continuing into January and February. 

The hospitality real estate group, which develops, owns and operates hotels and resorts, comfortably beat revenue and profit expectations in 2022, and said that demand for leisure and corporate travel and events had continued to strengthen across all markets. 

Yet its performance is still well below pre-pandemic levels. While occupancy improved throughout the year to 60 per cent, up from 31 per cent in 2021, it is still a way off 2019’s 80.6 per cent. Ebitda margins are also 5.7 percentage points below pre-Covid levels, despite price hikes that increased the average room rate to £160.40, compared with £128.50 in 2019. 

Profitability is one of the main things to keep an eye on. Management said inflationary pressures are likely to impact margins in 2023, “albeit modestly due to the offset by room rate increases” (the increased cost of energy and the “ongoing tough labour market” are particular problems). There is a risk that this will collide with a demand slowdown: the cost of living crunch could put exotic holidays out of reach for some customers, and a difficult economic backdrop might hit business travel and corporate events. 

There are plenty of growth opportunities, however. PPHE is launching a fund to acquire tired hotel assets for redevelopment. Management has also reported a £200mn development pipeline, with forthcoming openings in Zagreb, Rome and London’s Hoxton. 

Given the persistent uncertainty, however, PPHE is not cheap, trading on a forward price/earnings ratio of 21. We remain cautious for now. Hold. 

Last IC View: Hold, 1,422p, 1 Sep 2022