ii view: InterContinental Hotels recovering from virus slump

Hong Kong protests have hit, but growing room numbers fuelled profit growth.

Full-year results to 31 December 2019

• Revenue up 7% to $4.63 billion
• Operating profit up 4% to $865 million
• Final dividend up 10% to 85.9 US cents
• Total full-year dividend per share up 10% to 125.8 US cents
• Net debt up 36% to $2.67 billion

Chief executive Keith Barr said:

"Our performance in 2019 reflects the continued successful execution of our strategy, with the investments we're making in our brands, owner offer and enterprise capabilities accelerating net room openings and supporting sustainable long-term growth. These investments are being funded by our group-wide efficiency programme, which is on track to deliver $125 million of annual savings, with the majority already realised and being reinvested across the business.

"Led by strong demand for our established brands, we opened a record number of rooms, including our best ever performance for the Holiday Inn Brand Family, and we increased our share of signings in key markets globally. Future rooms growth will be further supported by our newer brands.

"Given the ongoing impact of coronavirus following the outbreak in China, our top priority remains the health and safety of our colleagues, guests and our partners on the ground, and we are doing all we can to support them at this difficult time.

"The fundamentals of our industry remain strong, and our cash-generative, resilient fee-based model, underpinned by a commitment to operate a responsible business, gives us confidence to continue making the strategic investments that will drive our long-term growth."

ii round-up:

InterContinental Hotels Group (LSE:IHG), whose brands include Holiday Inn and Crowne Plaza, reported a further slowing in room revenues in these latest results. 

Revenue per available room (RevPAR) fell by 0.3% for 2019 as a whole and by 1.8% in the fourth quarter, down from a fall of 0.8% in the third quarter. 

A fall of 10.5% for Greater China, including a drop of 63% for protest-hit Hong Kong, led the way. Management also failed to include any update from the impact of the coronavirus.

RevPAR for its biggest region, the Americas, fell by 1.6% in the final quarter, although rose by 0.2% for its European and rest of the world region. 

Adjusted profit, led by near-6% expansion in its room outlets compared to 2018, rose by 4% to $865 million, matching analyst forecasts, with ongoing group cash generation enabling a 10% increase in the total dividend payment for the full year. 

The share price had turned from an early loss to a 2.7% gain by late morning UK trading. Now, after falling 13% from mid-January, the shares are up more than 10% from the late-January low.

ii view:

InterContinental largely seeks 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 breadth. 

For investors, the dividend is more than twice covered by earnings, but a prospective yield of around 2% is well below the FTSE 100 index average of over 4%. Trading across its key markets has also deteriorated, while a forward price/earnings ratio in line with the 10-year average does not suggest the shares are obviously cheap. However, targeted cost savings for 2020 remain on track, with accompanying long-term management outlook comments still optimistic in tone. 

Positives: 

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

Negatives:

• Group net debt increased by 36%
• Subject to macro-economic and geopolitical uncertainties

The average rating of stock market analysts:

Weak hold