1 mid-cap stock I’d buy over Purplebricks Group plc

I think this fast-growing mid-cap is a safer bet than Purplebricks Group plc (LON: PURP).

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At 984p, shares in PPHE Hotel Group (LSE: PPH) have risen more than 725% since the beginning of 2010 and today’s interim results suggest that the firm is poised to deliver even more to its investors.

Strong brands

Highlights include like-for-like revenue almost 16% higher than a year ago and normalised profit before tax moving up a little over 10%, which the directors matched with a 10% hike in the interim dividend.

The company’s biggest market is the UK, which delivered around 60% of revenues during the period, The Netherlands contributed 18%, Croatia 10%, Germany and Hungary 10%, and 2% came from management services. Reported revenue came in at £141.8m during the first half of the year, generated from around 9,000 rooms in 39 hotels that are either owned, leased, managed or franchised. Most of the firm’s hotels are branded Park Plaza or art’otel, with the latter name owned outright by PPHE. Meanwhile an exclusive licence from Carlson Hotels — one of the world’s largest hotel groups – allows the firm to develop and operate Park Plaza Hotels & Resorts in Europe, the Middle East and Africa. 

Expanding fast

For most hotel firms trading conditions have entered what looks like a ‘purple patch’ and PPHE is taking full advantage with a vibrant expansion programme. Deputy chief executive and chief financial officer Chen Moravsky highlights in today’s report the offering of shares in the firm’s Croatian subsidiary called Arena Hospitality Group, which raised around €106m to accelerate growth in Central and Eastern Europe. PPHE retains a 51.97% controlling interest in a move that I think emphasises the firm’s creative approach to financing growth. Other fund-raising events include a sale and leaseback of the recently opened Park Plaza London Waterloo hotel.

Around 706 rooms were added in London during the period and the development pipeline includes two new hotels expected to add 500 rooms by the end of 2019. City analysts following the firm reckon earnings will decline 11% during 2017 and increase by 21% during 2018. Growth is on the agenda and I think the stock is worthy of your further research.

Great expectations

I’d rather take my chances with PPHE than hybrid estate agency Purplebricks Group (LSE: PURP).  Back in June with its full-year results, Purplebricks announced revenue 151% higher compared to the year before at £46.7m. That’s a cracking rate of revenue growth and looks exciting if it can be sustained. Around 93% came from the UK and the rest from Australia, but the firm has its sights set on the American market too.

However, the firm is still making a loss, and at today’s share price of 463p, the £1,257m market capitalisation is almost 27 times the revenue figure. We can compare that to traditional estate agent Countrywide, which has a revenue figure running at just over twice its £322m market capitalisation. The difference between the two firms’ valuations is striking and the market seems to be pricing in an outcome in which Purplebricks disrupts and devastates the estate agency industry while cleaning up on profits along the way. It may happen, but it hasn’t happened yet and the current valuation appears to leave little room for setbacks, so I’m avoiding the shares.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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