ii view: InterContinental Hotels restarts the dividend

Guests are returning but the shares have underperformed the wider stock market over the last year. Buy, sell, or hold? 

Full-year results to 31 December 2021

• Revenue per available room (RevPAR) recovered to 70% of its pre-Covid 2019 levels
• Operating profit up 144% to $534 million
• A final dividend of 85.9 US cents per share (2020: Nil)
• Net debt down 26% to $1.88 billion

Chief executive Keith Barr said:

"Trading improved significantly in 2021, with RevPAR getting closer to pre-pandemic levels as the year went on, profitability and cash flow rebounding strongly, and signings accelerating in Q4.

“The signs are encouraging that we are nearing the end of the pandemic, and we are confident in the strength of IHG's enterprise, market positioning and ability to drive attractive levels of long-term, sustainable growth." 

ii round-up:

Hotel operator InterContinental (LSE:IHG) today recommenced dividend payments as it reported a continued recovery from the global pandemic. 

Revenue per available room (RevPAR) recovered to 70% of its pre-Covid 2019 levels in the year to December, helping operating profit more than double year-over-year to $534 million.

Intercontinental shares rose by around 2% in UK trading, having risen by over 90% from pandemic market lows in March 2020. UK and German budget hotel operator Whitbread (LSE:WTB) is up by just under 50% in that time, similar to the FTSE 100 index. 

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InterContinental’s RevPAR in the fourth quarter of its financial year recovered to 83% of that seen in the same quarter of 2019, before Covid 19 struck.

A final dividend of 85.9 US cents per share is equivalent to the payout cancelled in 2019. In 2018, along with a total full-year dividend of 88.1 US cents, the hotelier also paid a special dividend of 203.8 US cents. 

Cost savings have remained a focus, while more than 400 new hotel signings were made over the course of 2021. IHG's global pipeline of rooms now equates to more than 30% of today's overall system size. Broker UBS highlighted that fourth-quarter signings were only 5% below those achieved in the final quarter of 2019. 

Management outlook comments pointed towards expectations for US industry RevPAR, the company's biggest geographical sales generator, to return to full-year 2019 levels by the end of 2023.  

ii view:

InterContinental has nearly 6,000 open hotels in more than 100 countries and a further 1,800 in the development pipeline. 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 its geographical breadth. 

For investors, geopolitical tensions regarding Ukraine could now disrupt travel in and around the region, while uncertainty around the pandemic remains, and there are concerns that business travel may not return to its pre-Covid levels. Elevated inflation globally is also squeezing consumers, with hotel bookings a luxury they could potentially sacrifice. 

That said, signs of trading recovery are evident, cost savings continue to be found, net debt has reduced, and the restarting of a dividend payment has been made. In all, and while some caution looks sensible given a still clouded outlook, a scaling back of Covid restrictions and promising growth in overall room numbers will likely convince long term investors to book in. 

Positives: 

• Strong and diverse brand portfolio
• Making cost savings 

Negatives:

• Uncertain outlook 
• Rising geopolitical tensions

The average rating of stock market analysts:

Strong hold