Earnings at PPHE Hotel (PPH) will benefit from a refinancing deal that lowers the cost of servicing debt on its Park Plaza Victoria hotel in London.

The European leisure group has refinanced the debt at 3.4% for 10 years, much lower than the 5.7% previous rate paid. FinnCap estimates this will add £600,000 to profit for 2017, but this figure could increase further if another refinancing plan proceeds.

PPHE says it is in talks regarding the long-term financing for another of its London hotels. FinnCap calculates that the Victoria refinancing will take the average interest rate across the group from 5% to 4.7%. Therefore a subsequent refinancing could bring that figure down even more.

The news about the Victoria hotel helps to sustain upwards momentum in the share price; now marked 2.1% higher to 822p.

The shares have now increased by 30% in value in the past month, helped by impressive full year results on 10 March which included 25.5% rise in pre-tax profit, 10% hike in the dividend and increase in the fair value of its hotel assets.

FinnCap analyst Guy Hewett says 2016 will be an important year for the group with three new hotels opening in the UK and Germany and an extension to an existing hotel in London; all set to increase the number of rooms across the group portfolio by 25%.

‘This will drive growth in earnings per share and net asset value into the medium term as occupancy and room rates rise in the new hotels and the established hotels continue to benefit from their focus on London and Amsterdam (both strong hotel and property markets).

Meanwhile, PPHE is buying out the 80% of shares it doesn’t own in its Croatian joint venture for £40 million.

‘The group knows the assets and their potential well and we believe that they will provide the next leg of growth beyond the current new build plans,’ says Hewett.

The company a few years ago described the Croatian operations to SHARES as being a lucrative camp site, apartment complex and various hotels on a site twice the size of London's Hyde Park where 25,000 people stay each day during the May to September season.

We have consistently flagged the upside potential for PPHE over the past three years in SHARES, saying to buy at 303p in August 2013, 450p in September 2014 and 606p in December 2015.

We continue to like the stock. FinnCap has a £10.80 price target.

Issue Date: 30 Mar 2016