ii view: InterContinental Hotels on an improving trend

The dividend remains suspended, but most hotels are back open with management confident long term. 

First-half results to 30 June

• Revenue down 45% to $1.25 billion
• Operating loss of $233 million, down from a profit of $442
• No dividend payment
• Net debt down 12% to $2.52 billion

Chief executive Keith Barr said:

"The impact of this crisis on our industry cannot be underestimated, but we are seeing some very early signs of improvement as restrictions ease and traveller confidence returns. Whilst the near-term outlook remains uncertain and the time period for market recovery is unknown, we are well positioned with preferred brands in the largest markets and segments, a leading loyalty platform and one of the most resilient business models in the industry. This gives us confidence in our ability to meet the needs of our guests and owners, and to emerge strongly when markets recover."

ii round-up:

Crowne Plaza and Holiday Inns operator InterContinental Hotels Group (LSE:IHG) today reported improving occupancy rates and revenues from the lows of the Covid-19 pandemic back in April.

Revenue per available room (RevPAR), a common industry measure, is expected to be down by 58% in July compared to July 2019, significantly better than the fall of 82% in April and 76% and 67% falls suffered in May and June respectively.

Its global estate of hotels is now 95% open. It franchises, leases, manages or owns more than 5,900 hotels and approximately 883,000 guest rooms in more than 100 countries. Around 1,000 of its hotels were shut back in April. 

InterContinental shares rose by more than 4% in early UK trading having risen by 60% since the UK went into lockdown in late March. The shares are down by a fifth year-to-date. Shares of UK and German budget hotel operator Whitbread (LSE:WTB) are down by two-fifths in 2020 and up by 22% since late March. 

Half-year revenues for Intercontinental fell by nearly half in the six-month period to the end of June, with the group reporting a loss of $233 million compared to a profit of $442 million for the first half back in 2019. 

Measures to preserve cash including cancelling the 2019 final dividend payment of 85.9 US cents per share, left funds liquidity standing at a comfortable $2 billion.  Group net debt retreated by 12% from the end of 2019 to $2.52 billion.

Given the still uncertain pandemic overshadowed outlook, InterContinental is also not paying an interim dividend payment. Ongoing actions to reduce costs include plans to make around half of the $150 million of savings it achieves this year sustainable into 2021. 

Underlining management’s long-term confidence, it opened more than 90 hotels in the period. 

ii view:

InterContinental largely seeks to operate hotels as opposed to owning them, charging building owners fees to operate its branded hotels. 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 breadth. 

Measures taken to preserve cash and see out the Covid-19 pandemic have included boosting cash liquidity via a £600 million ($740 million) application to the Bank of England’s Covid loan facility, suspending the dividend payment and reducing capital expenditure from $101 million in the first half 2019 to $85 million. 

For investors, and while InterContinental is far from alone, the continued suspension of the dividend payment is a blow. Uncertainty regarding the outlook also remains significant. The potential for a second virus wave and following population lockdowns cannot be ruled out. But signs of recovery continue to grow, while the company's fee-based model and wide geographic spread arguably leave it is well placed to manage through uncertain times. 

Positives: 

• Strong and diverse brand portfolio
• Total liquidity available of $2 billion 

Negatives:

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

The average rating of stock market analysts:

Hold