Interactive Investor

ii view: InterContinental Hotels details significant shareholder returns

Under a new chief executive and operating hotels in the world’s two biggest economies. Buy, sell, or hold?

20th February 2024 11:36

Keith Bowman from interactive investor

Full-year results to 31 December

  • Total revenue up 19% to $4.6 billion
  • Revenue per available room (RevPAR) up 16%
  • Adjusted operating profit up 23% to $1.02 billion
  • Final dividend of 104 US cents
  • Total dividend for 2023 up 10% to 152.3 US cents
  • New share buyback programme of up to $800 million
  • Net debt up 23% to $2.3 billion

Chief executive Elie Maalouf said:

"I was honoured to take over as IHG's group CEO in July and would like to thank our teams for delivering an excellent set of results. Travel demand was strong across all markets, with RevPAR up 16% on last year and 11% ahead of the 2019 pre-pandemic peak. 

“We look forward to an important next chapter of growth for IHG that creates long-term sustainable value for our shareholders and benefits our employees, hotel owners and communities."

ii round-up:

Global hotelier InterContinental Hotels Group (LSE:IHG) today outlined planned 2024 shareholder returns of more than $1 billion, as it reported full-year 2023 results broadly matching City estimates. 

The operator of brands including Holiday Inn and Crowne Plaza has just launched a new $800 million share buyback alongside its dividend, with the total payment for 2023 rising 10% to 152.3 US cents per share. 

Shares in the FTSE 100 company rose 2% in UK trading having come into this latest news up around 40% over the last year. That’s similar to rivals Marriott International Inc Class A (NASDAQ:MAR) and Hilton Worldwide Holdings Inc (NYSE:HLT) and comfortably ahead of a near 15% rise for UK and Germany focused Premier Inn owner Whitbread (LSE:WTB)

InterContinental operates 19 global brands from budget to luxury names, charging fees to the owners of the properties to operate and run them under its hotel brands. 

Full-year Revenue Per Available Room (RevPAR), a key industry metric, rose 16% from 2022 and by 7.6% in the fourth quarter, helping push adjusted operating profit up by almost a quarter to $1.02 billion – the first time its exceeded $1 billion. 

IHG opened 275 hotels in 2023 and signed 556 hotels into its development pipeline. Group net debt rose by nearly a quarter year-over-year to $2.3 billion, partly to fund its 2023 share buyback programme of $750 million.

Although offering no 2024 projections, IHG expects medium to long-term high single-digit growth in fee revenues, pushing compound annual growth in adjusted earnings per share of between 12% and 15% and including ongoing share buybacks. 

A first-quarter trading update is scheduled for 3 May. 

ii view:

Headquartered in Buckinghamshire, InterContinental operates more than 6,350 hotels in over 100 countries. Weighted towards mid-scale and luxury, other brands include Regent, Kimpton, Staybridge and Iberostar. The Americas generate most of its profit at around 72%, followed by the combined Europe, Middle East, Asia and Africa (EMEAA) at almost 20% and Greater China the balance of 8%. 

For investors, heightened borrowing costs continue to squeeze spending for both consumers and corporate customers initiating business travel. Costs for businesses generally remain elevated. There are clear risks for its China business given the strained relationship between China and the West following the war in Ukraine, while an estimated future price/earnings (PE) ratio of around 23 times is no longer at a discount to global peers. 

More favourably, there is broad geographical exposure and brand diversity, and new hotels are being opened. Its net debt to adjusted profit (EBITDA) ratio of 2.8 times remains within management’s comfort zone of 2.5 to 3 times, while shareholder returns remain a focus, with the shares on a forecast dividend yield of over 1.5%.

On balance, and while the valuation may for now be broadly up with events, this leading global hotelier looks to remain deserving of its place in diversified investor portfolios.

Positives: 

  • Brand and geographical diversity
  • Focus on shareholder returns 

Negatives:

  • Uncertain economic outlook 
  • Heightened global geopolitical tensions

The average rating of stock market analysts:

Hold

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