ii view: InterContinental Hotels hit by trouble in Honkers

After the weakest quarterly room revenue performance since 2010, should investors be checking out?

Third-quarter trading update

• Group revenue per available room (RevPAR) down 0.8%
• Americas RevPAR down 0.6%
• Europe, Middle East, Asia & Africa RevPAR was up 0.2%
• Greater China RevPAR down 6.1% - Hong Kong RevPAR down 36%
• Annual results to be hit be a $5 million cost due to Hong Kong difficulties

Chief executive Keith Barr said:

"Our continued strategic focus on driving net rooms growth enabled us to deliver a 4.7% increase in net system size despite a strong comparable. This will accelerate in the coming quarter and we are on track to deliver industry leading net system growth over the medium term. 

"We have made further progress executing against our strategic initiatives, with the first franchise applications already received for Atwell Suites, our new upper midscale brand which was launched for franchise sales at the end of the quarter. 

"Despite the weaker RevPAR environment, and the challenges some of our markets are currently experiencing, we remain confident in our financial outcome for the rest of the year."

ii round-up:

Hotelier InterContinental Hotels Group (LSE:IHG), owner of chains such as Holiday Inn and Crowne Plaza, has just reported its weakest quarterly room revenue performance since 2010.

Third-quarter total group room revenues or RevPAR fell by 0.8%, down from a fall of 0.2% in the second quarter and a gain of 0.3% in the first. 

Ongoing unrest in Hong Kong resulted in a 36% RevPAR decline, driving a 6.1% fall for its overall Great China region. 

Its core Americas region - the USA generated around 45% of total 2018 group revenues – also suffered a decline. Room revenues overall retreated by 0.6%, with the core US down 0.6%, driven by renovation activity and lower customer demand. Elsewhere, Canada and Mexico suffered 2% declines, while Latin America and the Caribbean enjoyed a 6% increase. 

Europe, Middle East, Asia & Africa proved more favourable. RevPAR rose by 0.2%, although that's down from the 0.7% seen in the first quarter, with the UK and France both contributing positively. 

Total rooms opened on a net basis grew by 4.7% to 865,000, with management on track to exceed 5% for the current full year. IHG has also strengthened its customer loyalty offer through an exclusive partnership with travel club and boutique hotel specialists, Mr & Mrs Smith.

The share price fell by over 2% in early UK stock market trading. 

ii view:

InterContinental largely looks to operate hotels as opposed to owning them. In previous years it undertook a series of asset sales and subsequent returns of cash to shareholders. The company offers diversity in both its brands and market positioning, and geographical breath. 

For investors, the dividend is more than twice covered by earnings, but a prospective yield of around 2% is no major draw. Conditions on the ground in key markets are clearly proving tough, too, while a forward price/earnings ratio in line with the 10-year average does not shout 'bargain'. That said, we are approaching the time of year when InterContinental's shares have done well in the past.

Positives: 

• Strong and diverse brand portfolio
• Targeting cost savings of $125 million per year by 2020

Negatives:

• Group half-year net debt increased by 30%
• Subject to macro-economic and geopolitical uncertainties

The average rating of stock market analysts:

Weak hold