PPHE Hotel increases revenue per room to offset inflation

There was no interim pay-out for shareholders in PPHE Hotel Group (PPH) at the half-year mark, although the board intends to “consult with shareholders” over the “most appropriate and effective mechanism” for future distributions. In a related update, the board said that the hotel group is “now in a position to return to its historical capital returns policy of distributing approximately 30 per cent of adjusted EPRA earnings”.

Beyond any deliberations on distribution policy, it is to be hoped that an anticipated surge in cash profits will also be utilised to reduce the group’s debt pile. Management is confident that new hotel openings will place PPHE on a firmer financial footing, an imperative given that the cashflow statement reveals a £23.2mn net interest outflow, which is equivalent to the overall decrease in cash through the period under review.

The distributions update comes as the group reported a notable increase in revenue as occupancy rates continue to recover, while cash profits shot up by 166 per cent to £45.2mn. Management anticipates that another £25mn in profits will follow on from new property openings over the next nine months.

A key metric – revenue per available room (RevPAR) – increased by 18 per cent to £110.30, which was in advance of pre-pandemic levels. It should be remembered that this was achieved against inflationary backdrop, but the extent of the increase suggests that management has been proactively increasing room rates to offset the cost pressures. Given the ongoing imperative to rebuild occupancy rates, it’s clearly something of a balancing act, yet the cash profits surge indicates that PPHE may be ahead of the curve in this regard. Management cites “the implementation of innovative solutions and forward planning focused on enhancing its sustainability and energy efficiency” – whatever that means.

The group’s net realisable value was broadly flat at £25.05 per share, although management notes that this was primarily due to the change in the GBP/EUR currency conversion rate.

RevPAR has nearly tripled since December 2021 and the positive trading momentum, as outlined in the June market update, has continued despite wider economic challenges. Volumes from both business and tourism provide encouragement and the services segment of the economy has proved to be surprisingly resilient despite stretched private and corporate budgets. The group’s share price increased by around 5 per cent on results day, yet a forward rating of 24 times consensus earnings suggests that the market is up to speed. Hold.

Last IC view: Hold, 1,155p, 02 Mar 2023