ii view: InterContinental Hotels cheers growing travel demand

This FTSE 100 listed hotelier offers both a diversity of brands and geographical regions. We assess prospects.

First-quarter trading update to 31 March

• Revenue per available room (RevPAR) down 18% versus Q1 2019
• Revenue per available room (RevPAR) recovered to 82% of its pre-Covid 2019 levels
• Signed 16.6k rooms (120 hotels) during the quarter

Chief executive Keith Barr said:

“The high level of demand we have seen for leisure travel continues to drive increased rates and occupancy. We also continue to see a return of business and group travel, further supporting revenue per available room improvements in many of our key urban markets.”

ii round-up:

Hotel operator InterContinental (LSE:IHG) today pointed to very positive trading conditions over the first three months of 2022, with travel demand continuing to increase in almost all its key global markets. 

Revenue per available room (RevPAR), a core industry performance measure, fell by 18% when compared to the same pre-pandemic 2019 first quarter. But that beat City expectations for a fall of nearer to 20%. RevPAR compared to the heavily Covid impacted first quarter of 2021 rose by 61%. 

Intercontinental shares were little changed in UK trading, leaving them up around 4% year-to-date. Shares for UK and German budget hotel operator Whitbread (LSE:WTB) are down over 8% during 2022, the FTSE 100 index is up by just under 1%, while the US S&P 500 index is down around 13%. 

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Intercontinental flagged sequentially improved trading in February and March after a challenging January for both its Americas and European, Middle East, Asia and African business (EMEAA) regions. RevPAR improved by 58% in the Americas compared to the year ago quarter and more than doubled for the EMEAA region. 

Greater China was impacted during March by a tightening of localised Covid-19 travel restrictions, causing a 7.4% drop in RevPAR year-over-year.

The hotelier signed 16,600 rooms or 120 hotels into its development pipeline during the quarter, up 15% on the year ago period, although down from the prior quarter’s 24,600.

First-half results to the end of June are scheduled for 9 August. 

ii view:

InterContinental Hotels has around 6,000 open hotels in more than 100 countries and a further 1,800 in its development pipeline. Its portfolio of brand names includes Crowne Plaza, Holiday Inn, and InterContinental itself. During its last 2021 financial year, the US generated its biggest slug of revenues at just under 44%. The UK accounts for around 5%. 

For investors, the ongoing hit to trading for its Greater China business from the pandemic remains a hinderance. Elevated inflation globally is also leaving consumers squeezed, with hotel bookings a luxury that could potentially be sacrificed or downgraded to a cheaper brand. Business travel may also not return to its pre-Covid levels given increased use of technology and video conferencing, 

That said, InterContinental offers both brand and geographical diversity, with options from luxury to essential or value brands available. Cost savings continue to be pursued, net debt was reduced over 2021, while a restarting of the dividend payment was previously made and the shares now offer an estimated dividend yield of around 1.6%. On balance, and while some caution looks sensible given both economic and pandemic headwinds, signs of recovery arguably offer scope for longer term optimism. 

Positives: 

• Both brand and geographical diversity
• Restarted dividend payment 

Negatives:

• Uncertain economic and pandemic outlook 
• Heightened global geopolitical tensions

The average rating of stock market analysts:

Buy