Intercontinental Hotels Group (IHG)


InterContinental Hotels Group unveils strong results

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InterContinental Hotels Group (IHG) on Tuesday announced better-than-expected results for the full year, with an 11% rise in profit for 2012.

The hotelier, which owns the Crowne Plaza, Holiday Inn and InterContinental brands, posted a 6.1% rise in its revenue per available room (RevPAR) in the Americas.

The region was the main driver for 2012's healthy results, with 17,000 room openings (up 8% on 2011), while the Holiday Inn brand accounted for over two-thirds (70%) of hotel openings for the period. The $1 billion (£644 million) relaunch of the Holiday Inn brand family announced in 2007 has been "demonstrating its benefits", said IHG.

The group posted positive results in Europe, where it doubled the size of its offering with new openings, while Asia, Middle East and Africa (AMEA) results were offset by slowing economic growth in the region in 2012, as well as political tensions in countries such as Lebanon.

Overall, Saudi Arabia and the United Arab Emirates performed well, with RevPAR up 8.0% and 5.5% in the year respectively, while the British group reported sluggish growth for the region.

"2012 was another year of significant progress for IHG," stated chief executive Richard Solomons. "The financing environment remained tough through 2012 in many of our key markets, but we still signed on average one hotel a day into our pipeline."

Analyst view

Simon French, analyst at Panmure Gordon, rated the stock a 'hold', explaining: "We are not particularly optimistic about the global macroeconomic backdrop but demand remains relatively robust in the Americas and crucially supply growth is virtually non-existent enabling hoteliers to push through increases in average daily rate. Supply growth is stronger in Europe, particularly in the UK (and especially London)."

He added: "[The] weakening sterling makes the stock less expensive." On his forecasts, the stock trades on a 2013 price/earnings [ratio] of 20.1 times."

James Hollins, analyst at Investec, downgraded the stock from a 'buy' to a 'hold', commenting: "We think parity with its US peers is fair and that InterContinental Hotels Group remains a core sector holding, particularly given our unchanged view that a further c. $1billion of cash shareholder returns is likely in the next 12 months, depending on the sale of the London and New York InterContinental hotels - this remains an ongoing process."

However, he added, "The rating and recent share run drive our move from 'buy' to 'hold', albeit on a higher discounted cash-flow-based price target of 2,000p."

Paul Kavanagh, analyst at Killik & Co reiterated his 'buy' recommendation.

He explained the hotelier's flattening shares compared to their strong run in recent months represented "a slight discount to the global peer group".

Kavanagh said: "We would use this weakness as a buying opportunity, given the potential for upgrades from a strong growth pipeline, margin enhancement and balance sheet utilisation."

"There is also the prospect of further capital returns from operating cashflow and asset sales," he stated.

"In the near term, the shares will continue to be supported by the $500 million buyback programme, while the c. 4% stake taken by activist investor Nelson Peltz has fuelled the potential for a bid."