Interactive Investor

ii view: InterContinental Hotels shares fall despite results beat

Shares in this owner of brands including Holiday Inn have rallied hard year-to-date, but not today. We assess prospects.

20th October 2023 12:03

by Keith Bowman from interactive investor

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Third-quarter update to 30 September

  • Revenue per available room (RevPAR) up 10.5%
  • Current share buyback programme of $750 million now 94% complete

 Chief executive Elie Maalouf said:

"Travel demand remained very healthy during the quarter, and I would like to thank all our teams for supporting another strong trading period.”

ii round-up:

Global hotelier InterContinental Hotels Group (LSE:IHG) today detailed customer demand above City forecasts, but also pointed to some short-term financing challenges holding back new hotel development.

Third-quarter Revenue per Available Room (RevPAR), a key industry metric, rose 10.5% year-over-year, beating analyst forecasts for 9%, with an occupancy level of 72% just 1% behind pre-pandemic 2019 rates.

Shares in the FTSE 100 company fell more than 3% in UK trading having come into this latest news up by close to a third year-to-date. That’s similar to rivals Accor SA (EURONEXT:AC) and Premier Inn owner Whitbread (LSE:WTB) and in contrast to a 1% fall for the FTSE 100 index itself during 2023. 

InterContinental operates 19 hotel brands globally, ranging from luxury & lifestyle names such as Six Senses and InterContinental itself to everyday essentials like Holiday Inn. 

Growth in RevPAR continued to be led by a post pandemic 43% rebound in China, while quarterly growth in its biggest market, the Americas, was a more sedate 4%. Its European, Middle East, Asia and Africa (EMEAA) region occupied the middle ground with growth of 16% compared to Q3 2022. 

The hotelier opened nearly 8,000 rooms across 50 hotels in the quarter, down from 21,000 rooms across 108 hotels in the prior second quarter. 

Sir Ron Kalifa, former director of Worldpay and NatWest Group (LSE:NWG), is to join IHG in early 2024 as non-executive director. The 2023 share buyback programme of $750 million is now 94% complete, with management highlighting its hopes for further future returns. 

Details regarding a potential new share buyback programme are expected to be outlined alongside full-year results on 20 February. 

ii view:

Headquartered in Buckinghamshire, InterContinental operates more than 6,200 hotels in over 100 countries. The US generates its biggest slug of sales at just over two-fifths with the UK accounting for less than 7%. Brands include Regent, Kimpton, Crown Plaza and Staybridge Suites as part of its asset light business model, with other organisations usually owning the hotels and it charges fees to operate and run them under its brands.

For investors, the challenging economic backdrop, including heightened interest rates potentially hindering new hotel developments, warrants consideration. A cost-of-living crisis continues to impact its customers globally, and costs for businesses generally remain elevated.  The relatively new chief executive follows the highly experienced former head Keith Barr, while working in China also carries risk, especially given strained relations between the West and China. 

To the upside, geographical and brand diversity are high and new hotels are being opened. A firm eye on costs persists, while shareholder returns remain in focus with the shares offer an estimated future dividend yield of around 2%. 

For now, and while geopolitical tensions such as those in the Middle East should not be ignored, this global hotelier looks to remain deserving of its place in diversified investor portfolios. 

Positives: 

  • Brand and geographical diversity
  • Focus on shareholder returns 

Negatives:

  • Uncertain economic outlook 
  • Heightened global geopolitical tensions

The average rating of stock market analysts:

Hold

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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