PPHE reports record revenue and profits

There was a muted share price reaction to PPHE Hotel Group's (PPH) – confirmation that it had delivered record annual revenue and cash profits, which was no surprise given January's trading update, which upgraded guidance again. The results represent a definitive step forward from pandemic pain, as highlighted by the big increase in the dividend.  

Chief financial officer Daniel Kos told Investors' Chronicle that “we have focused a lot on driving room rate growth”.

This was evident in the results, with the average room rate up 4 per cent to £167 and now 30 per cent ahead of pre-pandemic levels, although management guides that it will stabilise this year. Revenue growth was driven by a combination of the rates uplift and the ongoing occupancy recovery, with the occupancy rate rising 12.4 percentage points to 72.4 per cent. This meant that the key revenue per available room (revpar) metric surged by more than a quarter to £121.

While the group framed the results as "a full recovery to pre-pandemic levels", it must be noted that the occupancy rate and a cash profit margin of 30.9 per cent remain below 2019 levels. But favourable travel and leisure demand trends are benefiting the group, and its 2024 margin should be helped by utility hedges and action to limit the impact of the upcoming minimum wage increases.

The new financial year is a big one for PPHE, as its £300mn development pipeline feeds through. Management forecasts that recent and upcoming openings will add £25mn to cash profits. A valuation of 18 times forward consensus earnings, a nice discount to the 24 times when we last covered the group, highlights an opportunity. Buy.  

Last IC view: Hold, 1,136p, 31 Aug 2023