MIDAS SHARE TIPS: Book for profit with trendy hotel group PPHE with room to grow

Graffiti can be ugly, annoying and destructive. Street art should be different – ​​and D*Face is one of its most prolific advocates. The London-born artist is known for his outsized murals and celebrated for his work in cities from Los Angeles to Tokyo. That makes him the ideal partner for the hotel group PHEs latest offering, the art’otel in Hoxton, London’s hipster hotspot.

Featuring a rooftop bar, co-working space and a dedicated art gallery, the 26-storey space will open in less than a fortnight, styled with pieces from D*Face.

Art’otel is just one of the brands of PPHE, a collection of trendy sites spread across Europe, each with their own signature artist and other hip accessories. However, the group is not a fashion-oriented start-up. Founded in 1987 with one small hotel in the Netherlands, it now has 52 properties to its name, ranging from campsites in Croatia to the 1,000-room Park Plaza opposite Big Ben in London.

The value of its shares halved during the pandemic to £9.83, as the group was forced to close almost every location (although some remained open for medical staff). There has been some price recovery, but at £14.35, PPHE shares remain well below their pre-lockdown record levels. That seems unfair. Co-founder Boris Ivesha recently posted record results for 2023, revealing that 2024 had started well and suggesting further growth was on the horizon.

Most companies in this sector build or run hotels. PPHE does both – and this has several advantages.

Firstly, it is much cheaper to buy land or an empty building and turn it into a hotel than to buy something that is already in use. The Park Plaza near London’s Waterloo station is an example of this. Originally an office building, PPHE spent £125 million turning it into a 500-bedroom hotel. Upon completion, the site was independently valued at £250 million – a handsome increase from £125 million. PPHE can also build hotels exactly the way they want. The elevators are in the right places, the rooms are easy to clean, restaurants are not too big and not too small, even the corridors are well thought out.

Importantly, Ivesha and his team can choose locations based on where they think hotels would perform well, rather than where they already happen to be.

The strategy has been refined over many years, starting when an American entrepreneur was looking for a partner to develop Park Plaza hotels in Europe. Ivesha stepped in and has been building and operating Park Plazas ever since. The brand still accounts for almost half of the PPHE portfolio, but other names have joined the mix, including art’otel and Radisson Red, another luxury option for the trendy traveler.

Campsites in Croatia are different again. Popular in summer, the accommodation available includes fully equipped wooden cabins and empty pitches.

The range is good for PPHE. Suites at the Park Plaza in Westminster cost £4,000 or more on New Year’s Eve, when guests can get a bird’s-eye view of the fireworks. Off-season camping in Croatia starts from £40 per night. The breadth of options appeals to both tourists and business travelers, from young to old, rich to cash-strapped.

Fortunately, demand is growing across the board. Turnover rose 26 percent to £415 million last year, underlying profit rose 35 percent to £128 million, and the dividend rose from 15p to 36p. There is a strong pipeline of new openings in the coming months, bookings are in good form and City analysts are optimistic about this year’s prospects, with revenues of £457m, profits of £151m and a payout of 41.7p to shareholders.

Ivesha is now 76 – and his co-founder Eli Papouchado ten years older – but both still sit on the board, as CEO and chairman respectively. Some observers have criticized the duo for excessive involvement. Others believe the company has benefited from their careful management. Whatever the case, succession plans have been put in place.

A joint CEO has been chosen to work with Ivesha. Greg Hegarty, who joined the team in 2009, understands the business inside and out. A deputy chairman has also been appointed. Ken Bradley is tasked with providing an independent voice on the board.

Shareholders can also take comfort in the founders’ continued support of the company: with a combined 43 percent stake, they are highly motivated to see PPHE succeed.

Midas judgment: PPHE trades on the stock market at £14.80, but independent experts say the group’s portfolio is worth £26.72 per share. This suggests the shares are significantly undervalued and should recover, making PPHE an attractive long-term buy.

Traded on: Main stock market ticker: PPH Contact: pphe.com