ii view: InterContinental Hotels flags 2021 recovery

Profit has turned to a loss, but the shares are up around a third since late October. Buy, sell or hold?

Full-year results to 31 December 2020

• Revenue per available room (RevPAR) down 52.5%
• Loss for 2020 of $153 million compared to a profit of $630 million in 2019
• No dividend
• Net debt down by 5% to $2.53 billion

Chief executive Keith Barr said:

“2020 was clearly the most challenging year in our history, with Covid-19 heavily impacting demand across our industry. 2021 has begun with many of these challenges still in place, with more meaningful progress towards recovery for the industry unlikely until later in the year and dependent on global vaccine rollouts, lifting of restrictions and an acceleration in economic activity.

“Having demonstrated resilience and outperformed in 2020, we continue to work closely with owners to capture demand, alongside investing to capitalise on our industry's long-term growth prospects. Our preferred brands in attractive markets and segments, even stronger technology and loyalty platforms, and a substantial proportion of our pipeline being under construction, give us confidence in our ability to achieve industry-leading net rooms growth as the market recovers."

ii round-up:

Hotel operator InterContinental Hotels (LSE:IHG) today reported a 2020 loss of $153 million and offered little reassurance near-term as it continued to battle reduced occupancy under the global pandemic. 

Intercontinental shares fell by nearly 1% in UK trading, leaving them up by around a third since late October - just before the announcement of vaccine development success. Shares of Premier Inn operator Whitbread (LSE:WTB) are up by more than 60% since late October. 

InterContinental franchises its brands to and manages hotels on behalf of third-party hotel owners. In a year which management labelled "the most challenging" in its history, revenue per available room (RevPAR), a common industry measure, fell by 52.5%.

Despite challenges, a weighting towards essential business and domestic leisure travel had given it some relative resilience compared to the broader industry. Its Holiday Inn Express brand was highlighted as a particular point of strength. 

On a geographical basis, Greater China continued to lead the recovery, having entered the pandemic first. Fourth-quarter RevPAR fell by 18.2% year-over-year compared to nearly 50% across the Americas and over 70% for its European and Middle Eastern region. 

Despite the lack of global tourism, InterContinental still opened another 285 hotels over the year. Its Holiday Inn brand family accounted for 60% of all openings and half of all signings during the year. The ongoing suspension of the dividend payment helped net debt to fall by 5% to $2.53 billion. 

ii view:

InterContinental operates over 5,960 hotels across more than 100 countries. Its brands include Crowne Plaza, Kimpton, Candlewood Suites, Regent, Hualuxe and InterContinental itself. The hotelier offers diversity in both its brands and market positioning, along with geographical breadth. 

For investors, management outlook comments pointing to continued pandemic-related challenges and expected recovery later in 2021, are clearly reason for caution near term. A forecast price/earnings ratio in the mid-20s and at the upper end of its pre-Covid range also suggests the shares are not obviously cheap. And the dividend understandably remains suspended. That said, the rollout of vaccines does offer hope, while its fee-based model and wide geographic spread arguably leave it well placed to manage through the industry volatility.

Positives: 

• Strong and diverse brand portfolio
• Total liquidity available of $2.1 billion 

Negatives:

• Dividend payment suspended
• Uncertain outlook and potential for renewed hotel closures

The average rating of stock market analysts:

Hold