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No.36
Marketing
Communication
Your monthly guide to a range of equity ideas from the WH Ireland research team | April 2015
ACCOMMODATING EXPANSION
PLANS HERE AND ABROAD
PPHE Hotel Group (PPH)
FTSE All Shares | Share price: 523p | Market Cap: £218m
www.pphe.com
MITON
LAUNCHES
NEW MICRO
CAP FUND
PPHE Hotel Group is the owner and operator
of hotels in Europe under two distinct brands:
Park Plaza and art’otel.
Focused on the “affordable luxury” end of
the market it has 38 hotels in the UK, Holland,
Germany, Croatia, Budapest and Tel Aviv.
Of these, six are in London and account for
around two-thirds of sales and this market has
proved exceptionally strong, driven by increasing
tourist numbers, particularly from the US and
Far East but also due to a shortage of supply.
Fund management group Miton Trust Managers
has unveiled plans to launch a new Small-Cap
focused fund – the Miton UK MicroCap Trust.
Led by experienced fund manager Gervais
Williams, the plan is to raise £100m and target
smaller companies with a Market Capitalisation
of less than £150m.
PPHE benefits from an exclusive perpetual
license from US hospitality giant Carlson
which involves a small revenue share but
in return this provides access to a large
reservation system and a loyalty programme
with 13.5m members.
PPHE is currently undertaking fully funded
expansion and renovation programmes
which will involve a €200m investment over
the next two years. This includes 6 new
hotels, adding over 1,000 rooms (the current
portfolio spans 8,338 rooms) as well as the
extensive refurbishment of its existing hotels,
which may impact short term profitability but
provide a solid foundation for future growth.
One major development is a new 494 room
Park Plaza hotel due to open next year,
near Waterloo station; this has planning
permission secured and will greatly enhance
PPHE’s presence in the capital.
What we like
PPHE aims to own hotels in key gateway
cities where capital value is likely to
appreciate over time. Results released last
month confirmed a record performance,
buoyed by improved trading and the
strengthening of Sterling against the Euro.
Occupancy levels are at a new high of 83.7%
and PPHE has successfully both increased
room prices and rationalised costs leading
to improved margins.
The company has attracted a widening
investor audience which has helped push
the share price up to an eight-year high.
Despite this rally PPHE still trades at a
significant discount to current NAV of 606p a
share, as well as to its listed peers in Europe.
Last year Williams published a book (“The Future
is Small”) in which it travailed that microcap
equities have struggled, but he expects this trend
to reverse. Williams says, “In a period of extended
weak economic growth, it is microcap companies
that often have the greatest growth prospects”.
He believes that active managers focused on
microcap stocks will outperform and plans
on investing in up to 120 companies.
The offer is due to open in early April and
trading is expected to commence on the
main market later this month.
Trading on 9x current year earnings and
offering a well covered dividend yield of 3.8%
for 2015 the shares are worth a closer look.
**WH Ireland will be acting as an intermediary
for this issue – for further information please
contact your usual private client adviser.
Estimates (Dec) 2014 (A) 2015 (E) 2016 (E)
Miles Nolan
Revenue (€m) 270.4282.3299.5
PBT* (€m) 32.732.034.3
P/E (x)
9.19.48.7
EPS* (c)
78.776.382.0
DPS (p)
19.020.022.0
Yield (%) 3.63.84.2
*Adjusted. Consensus forecasts
Editor
** This document / information /any other description of
the communication material is issued by, and is the sole
responsibility of WH Ireland. Any application to participate
in the Offer can and will only be made on the basis of the
Prospectus, together with any supplements thereto.
Analyst: Miles Nolan
Email your name and WHI client number to whispy@wh-ireland.co.uk to receive future issues.
Warning to WH Ireland Clients. Important disclosures and certifications regarding companies that are the subject of this report
can be found within the disclosures page at the end of this document.
11 St. James’s Square| Manchester | M2 6WH | T +44 (0)161 832 2174 | London office: T +44 (0)20 7220 1666 | www.wh-ireland.co.uk
SWITCH IDEA
Sell EMG Man Group (EMG)
Buy STAN Standard Chartered (STAN)
Share price: 1,100p | Market Cap: £27.2bn
www.man.com | www.sc.com
Following our recommendation last
November, shares in Man Group have
surged, rising 60%. Its underlying trend
following funds, notably the flagship AHL
Diversified Fund, have performed strongly,
benefitting from movements in markets,
particularly as oil has declined. In our view,
performance is unlikely to continue at the
same rate in the near term and we believe
it is an opportune time to take profits.
For reinvestment, Standard Chartered
offers a compelling opportunity for long
term investors. 2014 proved to be a very
challenging year for the group, although
arguably most of the bad news is now priced
in. Whilst recent results were underwhelming,
they were broadly as expected. The valuation
The balance sheet remains strong and
proposed management changes should
improve prospects. Importantly, the dividend
was held steady at 86 cents, making a yield of
over 5%. The net interest margin declined to
1.9%. Our calculations show that the dividend
can withstand a fall to around 1.5%.
Estimates (Dec) 2014 (A) 2015 (A) 2016 (E)
appears to be at a rock bottom level.
The Price to Book ratio is at a prospective
0.9x against an historic average of 1.9x, despite
the attractive long term growth opportunities
provided by exposure to emerging markets.
This compares favourably with peers and
gives investors a substantial margin of error.
Revenue($m) 15,94018,20519,114
PBT ($m)
4,2355,1385,859
EPS (c)
101.6141.9162.4
P/E (x)
16.1 1.5
10.0
DPS (c)
86.074.878.0
Yield (%) 5.34.64.8
Consensus forecasts. Analyst: John Goodall
SET SAIL FOR THE HIGH SEAS
Clarkson Plc (CKN)
FTSE Small Cap – Share price: 2,223p | Market Cap: £670m | www.clarksons.com
Clarkson is a global shipping group,
with an intermediary role in commodity
transportation. Clarkson announced its full
year statement on the 9th March and results
were well ahead of expectation. Revenue
was up 20%, profit before tax was flat;
however, excluding one-off costs from recent
acquisitions, underlying profits were up 35%.
A strong result saw management raise the
dividend by 7%, to give a 3.7% forward yield.
The company also made a significant post
result acquisition in February. Platou is an
international broker and investment bank
focused on offshore and shipping markets.
What we like
The deal to acquire Platou extends the
group’s services and geography, with very
February, there could be upside to what was
good underlying profit growth at the full year.
The stock is supported by a sustainable
dividend yield of 2% forecast to rise to 3.7%
next year. Dividend growth remains well
above long run inflation with a compound
growth rate of 5% per annum over the last
five years.
Estimates (Dec) 2014 (A) 2015 (E) 2016 (E)
little crossover of business. The acquisition
will give both greater scale and provide for
new customer introduction. Clarkson has a
strong balance sheet with a net cash position,
with the majority of the £281m acquisition
funded by shares. The current valuation
remains attractive and with the Baltic
Dry Index setting a twenty five year low in
UPDATE: VOLUTION (FAN)
Ventilation supplier Volution has released a
robust set of interim results which confirm it
is on track to deliver market expectations.
In the six months to 31 January 2015 sales
increased 11% to £64.3m as adjusted pre-tax
profits edged ahead 8% to £12.7m.
Volution remains the dominant leader in the UK
with a 35% market share and also with a strong
presence in Germany and Sweden. Trading has
been strong, driven by good demand from new
residential schemes, the UK public sector and
exports. European wide regulation is targeting
that new buildings are zero carbon by 2020 – this
should provide a significant growth opportunity.
Revenue (£m) 238
PBT (£m) 25
EPS (p)
89.6
P/E (x)
22.3
DPS (p)
60.0
Yield (%) 2.0
Analyst: Luke Tribe
357387
6474
158.0177.0
12.711.3
73.081.0
3.74.1
Strong progress post IPO
Share price:150p | Market cap: £300m
As an asset light and high margin business
Volution plans to continue its organic growth
as well as seeking out an acquisition every
year. We highlighted its attractions last
September at 139p, now trading on 14x 2015
earnings the shares are worth holding on to.
Analyst: Miles Nolan
QUALITY RECRUITMENT BUSINESS
WITH STRONG GROWTH UNDERPINNED
BY A RECENT MA JOR WIN
RTC Group* (RTC)
FTSE AIM – Share price: 69p | Market Cap: £10m | www.rtcgroupplc.co.uk
RTC is a prominent player in its specialist
area of engineering recruitment. Through
its ATA business, RTC has many years of
experience in placing temp and permanent
technical and engineering staff for a host
of clients ranging from Airbus suppliers to
SMEs by way of the major household name
contractors. Strong sub-sectors include
transport, energy and civil engineering.
Ganymede, which supplies contingent
labour into safety critical environments, is a
highly effective leader in recruitment for the
rail sector, covering the whole range from
on-track operatives to authorised persons,
and was appointed recently by Network
Rail as a key recruiting partner. In addition
RTC operates overseas to provide white and
blue collar staff for employment in varying
international environments. Recently RTC
made a 20% earnings enhancing acquisition,
RIG Energy, a leading utility services
recruitment consultant, which is clearly
highly complementary.
What we like
We like the experienced management team
which has been successful in developing
the business strongly in recent years,
including CEO Andy Pendlebury who has a
background in major engineering companies
such as BAE and GKN, and in growing
and turning round similar businesses.
The underlying market is strong, with
improving confidence data for UK
manufacturing and the obvious benefits
of low inflation and a growing economy.
The CP5 spending programme which is just
getting underway will see nearly £1.3bn spent
in direct rail recruitment in the UK in the next
five years and forms a very positive backdrop.
We see further opportunities for RTC to
take market share in the still relatively
fragmented markets in which it operates.
While the shares have moved upwards in
recent times following the Network Rail
news, they remain on an undemanding 10x
PE rating and a PEG of around 0.6, tellingly
well below their closest comparators,
offering encouragement to investors.
*WH Ireland acts as NOMAD/Broker to RTC
Estimates (Dec) 2012(A)
2013 (A)
2014 (A)
2015 (E)
2016(E)
Revenues (£m)43.0
48.8
50.9
64.2 70.4
PTP adj.* (£m)0.5
0.7
1.0
1.2 1.6
EPS f.d.*(p) 4.3 3.8 5.5 6.68.0
P/E (x)
16.4 18.5 12.8 10.78.7
EV/EBITDA (x)18.8 13.3 7.1
6.8 4.9
DPS (p)
0.0 0.0 1.5 2.22.7
Yield (%) 0.0 0.0 2.1 3.13.9
*Adjusted. Source WH Ireland/Consensus forecasts. Analyst: Nick Spoliar
UPDATE: BRITVIC (BVIC)
Share price fizzes higher
Share price: 745p | Market cap: £1.9bn
Following our recommendation in
January, the shares are up a healthy
10% compared to the FTSE All share
which was up 5% over the same period.
The share price improved after a good
trading statement for Q1 2015 and outlook
for the year ahead supplies reassurance
Britvic is a great complementary stock for
diversification to more traditional holdings
fund managers hold in the Consumer
Discretionary sector. We look forward to
half year results on the 20th May.
that earnings will grow. The business is
planning for expansion with marketing
investment and a pipeline of product
innovation. Despite wider challenging
conditions in the sector, at the current
price we see an attractive valuation
compared to the wider sector.
Analyst: Luke Tribe
www.wh-ireland.co.uk
FUND MANAGER SPOTLIGHT
Neil Woodford | Woodford Funds | www.woodfordfunds.com
Highly regarded fund manager Neil Woodford
CBE is a man who needs little introduction
having previously run the Invesco Perpetual
High Income Fund – the largest investment
fund in the country. Described as, “One of
the best known and best performing fund
managers in the UK market today,” he is
currently on the road launching his latest
offering: Woodford Patient Capital Trust.
Woodford has long had a passion for
start-ups and this is exactly where he will
be focusing his efforts as he looks to raise
£200m (and up to as much as £500m) for his
latest venture – it is titled “Patient Capital”
to mirror the investment Woodford believes
early-stage businesses need to develop
great ideas into commercial success.
The UK has three of the top 10 universities
in the world but though we have been
strong on innovation it’s the paradigm shift
to commercialisation where Woodford
believes we struggle. He champions the
best of British and says, “We have a fantastic
pipeline across a range of opportunities”.
The due diligence process is key and to
this end Woodford and his team will
undertake a rigorous pre-investment
analysis. He adds, “We remain sector
agnostic, looking at investments on
their own merits” but he is keen to point
out, “It’s not a blank cheque, it’s a longterm relationship”.
Based in Oxford he sees a great advantage
to being near “the best medical science
resource in the world” but with a huge
network of contacts he doesn’t envisage deal
flow being a problem, though is cognisant of
the fact some investments will fail.
Woodford intends to invest c25% of the
proceeds in mid/large mature companies
– the dividend income from which will help
cover the trust’s running costs. The balance
will be invested in early stage and early
growth companies. In order to benefit from
diversification the intention is to invest in
70-100 companies when the fund is raised.
The intention is to target a return in excess
of 10% per annum over the longer term.
Woodford says, “A big mistake is selling too
early – we invest expecting never to sell”.
He points to holding on to stocks which
IPO, indeed he often invests more. Recent
companies that he has done well in include US
focused technology developer Allied Minds,
biopharmaceutical specialist Circassia and
disruptive washing machine innovator Xeros.
The placing and offer for subscription is at
100p a share (minimum investment of £1,000)
and the opening NAV will be 98.5p a share – no
dividend is planned. So as to straddle two tax
years the offer closes on 14 April, with dealings
due to commence on 21 April.
Analyst: Miles Nolan
Editorial Team
Miles Nolan - Editor
John Goodall
Luke Tribe
Formerly editor of Growth
Company Investor, Miles
has worked on the buy-side
and spent seven years at
the Investors Chronicle.
Having joined in 2007,
John heads Private Client
Research. He is a CFA
Charterholder.
Luke joined WH Ireland in 2010.
He holds a degree in financial
economics and is studying for
the CFA designation.
miles.nolan@wh-ireland.co.uk
john.goodall@wh-ireland.co.uk
luke.tribe@wh-ireland.co.uk
Contributors: Nick Spoliar, Institutional Research Analyst.
Disclaimer
This document contains investment recommendations of both a general and specific nature. It has been prepared with all reasonable care and is not knowingly misleading in whole or
in part. The information herein is obtained from sources which we consider to be reliable but its accuracy and completeness cannot be guaranteed. The opinions and conclusions given
herein are those of the research analyst or the analyst attests that the views expressed in this report accurately reflect his or her personal views about the subject, security and issuer and
are subject to change without notice. This document is classified as being “non-independent” and is a marketing communication as defined by the FCA’s Conduct of Business Rule 12.3.
It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead
of the dissemination of investment research. WH Ireland is or may be providing, or has or may have provided within the previous 12 months, significant advice or investment services
in relation to some of the companies and investments concerned or related investments. Clients are advised that WH Ireland Ltd. and/or its directors and employees may have already
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It should be remembered that past performance is not necessarily a guide to future performance. Shares purchased on the Alternative Investment (AIM) and ISDX markets (especially
those known as ‘penny shares’) carry a high degree of risk of losing money. The requirements on companies that are listed on the AIM and ISDX markets are less stringent than those for
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