Interactive Investor

ii view: investors check in as InterContinental Hotels beats City forecasts

A diversity of hotel brands and a new chief executive at the helm. Buy, sell, or hold?

8th August 2023 11:59

by Keith Bowman from interactive investor

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First-half results to 30 June

  • Revenue per available room (RevPAR) up 24%
  • Operating profit up 27% to $479 million (£687 million?????)
  • Interim dividend up 10% to 48.3 US cents per share
  • Current share buyback programme of $750 million now 47% complete
  • Net debt up 32% to $2.27 billion

Chief executive Elie Maalouf said:

"Our teams have delivered strong results in the first half, with financial performance, hotel openings and signings all significantly above prior year comparisons. 

“Travel demand is very healthy, with RevPAR improving year-on-year across all our markets and exceeding 2019 pre-pandemic peaks for four consecutive quarters.”

ii round-up:

Global hotelier InterContinental Hotels Group (LSE:IHG) today detailed sales and profits ahead of City forecasts as the boom in travel demand following the pandemic continued. 

Second-quarter Revenue per available room, or RevPAR, a key industry metric, rose 17% year-over-year, beating forecasts for 14% and pushing first-half adjusted operating profit up 27% to $479 million. Analysts had expected $450 million. 

Shares in the FTSE 100 hospitality group rose by more than 2% in UK trading to over £57 per share, having fallen below £25 at the height of the pandemic in March 2020. Shares are now up around a fifth year-to-date compared to a slight fall for the FTSE 100 index itself. Whitbread (LSE:WTB), owner of value brand Premier Inn in both the UK and Germany, is up by close to a third year-to-date. 

InterContinental operates 18 hotel brands globally ranging from luxury & lifestyle names such as Six Senses and InterContinental itself to everyday essentials like Holiday Inn. 

Under new chief executive Elie Maalouf and previous head of its biggest revenue generating Americas division, it soon plans to launch a new and additional brand targeting the mid-range marketplace. Management estimates this market to be worth around $14 billion in the US alone. 

IHG opened an additional 21,000 rooms or 108 hotels during the period to the end of June, an increase of more than 40% over the first half of 2022, leaving its global estate at 925,000 rooms or 6,227 hotels.

The interim dividend was increased by 10% year-over-year to 48.3 US cents per share, with its current share buyback programme of $750 million now almost half complete. 

Net debt rose by close to a third from this time last year to $2.27 billion, helping fund its continued share buyback programme, with the combination of dividends and buybacks expected to return around $1 billion to shareholders over the current full year.

A third-quarter trading update is scheduled for 20 October.  

ii view:

Headquartered in Buckinghamshire, other group brands include Regent, Kimpton, Crown Plaza and Staybridge Suites. The US generates its biggest slug of sales at just over two-fifths, with the UK accounting for less than 7%. Employing over 340,000 people globally, its business model is asset light with other organisations usually owning the hotels and it charging fees to operate and run under its brands.

For investors, the tough economic backdrop including heightened interest rates and a cost-of-living crisis needs to be remembered. Costs for businesses generally remain elevated, the new chief executive follows the highly experienced former head Keith Barr, while its operations in China now contend with a less friendly relationship with the West.

More favourably, geographical and brand diversity are high, new hotels continue to be opened, both costs and interest rates may now have peaked, while shareholder returns remain in focus with the shares offering a dividend yield of around 3%. 

On balance, and while global geopolitical tensions should not be forgotten, this international 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

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