Hey David, I somehow stumbled across this writeup and it's very good. Congrats! The problem I sometimes have with asset plays like this is -- what's the catalyst for a rerate to 1x NAV? Has PPH management shown any inclinination to consider share buybacks, for example? Or are we just waiting for a post-recession sentiment shift re tourism and the hotel sector?
Thanks, means a lot! Yes, I'm waiting for better sentiment for anything hotel related (and expect a record 2023), camping resort redevelopments, and maybe some special dividends when the balance sheet gets a bit stronger (management prefers dividends over buybacks).
However, I do agree it is a valid risk for the thesis if they don't do enough of the "capital recycling" at NAV (like the one transaction with Clal Insurance mentioned in the write-up) and instead plow money into low-ROIC investments.
IMO recycling alone should close down the NAV gap. Without that part of the biz model, it would probably be a value trap
Great write up David, and I'm glad I stumbled upon your corner of the internet.
I got quite interested in PPHE and opened a small tracking position. IMO this should always be a low dividend payer as they prefer to keep the payout low so that they can reinvest the earnings. I like the fact that they're both owners and operators and successful at the latter too, which is hard. On the other hand, it's a bit of a complex story, and maybe that's out of favor in the public markets as the market prefers "clean" stories, in this case either ownership, or operating of hotels. Also, it's both development and ownership and operating, so it combines three different segments, of which the first is perceived risky and by its very nature capital intensive and lumpy.
As for rerating higher, I think a combination of the following should help:
1) Successful raising of capital for their investment fund, something they haven't achieved yet. It will be interesting to see if that fund they registered can gather investor interest in a competitive environment for capital. They've said that they want to seed that fund with the Rome hotel which should open in 2024H1
2) Entry in FTSE250 or something like that, should increase liquidity, exposure, and hopefully rerating
3) Successful opening and operations of the new hotels that are coming online in the coming months
4) High earnings for 2023 - I think that's going to happen, and I think it's already priced in to some extent via the jump in the share price in 2023
Very much agree with the points you mentioned in the comment and doubt it'll re-rate if they don't update their cap allocation policy in a more shareholder-friendly way or increase ROIIC on the new hotels opened, which has been very disappointing in recent times.
1) If I remember correctly, the fund they have been talking about is already in business. Do fact-check me.
4) PPHE maybe, but not sure how likely. ARNT won't hit it based on the figures that they reported for 9M. Though, I don't know how much earnings matter here if they continue to deploy it unsuccessfully
Hey David, I somehow stumbled across this writeup and it's very good. Congrats! The problem I sometimes have with asset plays like this is -- what's the catalyst for a rerate to 1x NAV? Has PPH management shown any inclinination to consider share buybacks, for example? Or are we just waiting for a post-recession sentiment shift re tourism and the hotel sector?
Thanks, means a lot! Yes, I'm waiting for better sentiment for anything hotel related (and expect a record 2023), camping resort redevelopments, and maybe some special dividends when the balance sheet gets a bit stronger (management prefers dividends over buybacks).
However, I do agree it is a valid risk for the thesis if they don't do enough of the "capital recycling" at NAV (like the one transaction with Clal Insurance mentioned in the write-up) and instead plow money into low-ROIC investments.
IMO recycling alone should close down the NAV gap. Without that part of the biz model, it would probably be a value trap
Thanks David, that makes a lot of sense.
Great write up David, and I'm glad I stumbled upon your corner of the internet.
I got quite interested in PPHE and opened a small tracking position. IMO this should always be a low dividend payer as they prefer to keep the payout low so that they can reinvest the earnings. I like the fact that they're both owners and operators and successful at the latter too, which is hard. On the other hand, it's a bit of a complex story, and maybe that's out of favor in the public markets as the market prefers "clean" stories, in this case either ownership, or operating of hotels. Also, it's both development and ownership and operating, so it combines three different segments, of which the first is perceived risky and by its very nature capital intensive and lumpy.
As for rerating higher, I think a combination of the following should help:
1) Successful raising of capital for their investment fund, something they haven't achieved yet. It will be interesting to see if that fund they registered can gather investor interest in a competitive environment for capital. They've said that they want to seed that fund with the Rome hotel which should open in 2024H1
2) Entry in FTSE250 or something like that, should increase liquidity, exposure, and hopefully rerating
3) Successful opening and operations of the new hotels that are coming online in the coming months
4) High earnings for 2023 - I think that's going to happen, and I think it's already priced in to some extent via the jump in the share price in 2023
By the way, they have paid for a research report here: https://www.pphe.com/~/media/Files/P/PPHE-Corp/documents/investors/shareholder-centre/latest-equity-research/radnor-capital-initiation-note-2023.pdf in order to make their story simpler to understand.
I'm very interested to know your thoughts on PPE, assuming you still hold it, because it wasn't clear to me from your latest post.
Kind regards
Hey, Michalis!
First of all, thank you for the kind words.
I sold both Arena and PPHE in September for the reasons stated here: https://twitter.com/david_katunaric/status/1702406379422543979
Very much agree with the points you mentioned in the comment and doubt it'll re-rate if they don't update their cap allocation policy in a more shareholder-friendly way or increase ROIIC on the new hotels opened, which has been very disappointing in recent times.
1) If I remember correctly, the fund they have been talking about is already in business. Do fact-check me.
4) PPHE maybe, but not sure how likely. ARNT won't hit it based on the figures that they reported for 9M. Though, I don't know how much earnings matter here if they continue to deploy it unsuccessfully