ii view: IHG beefs up investor returns as travel recovers

A resumption of the interim dividend payment and a new share buyback programme. We assess prospects. 

First-half results to 30 June

• Revenue per available room (RevPAR) up 51% versus H1 2021
• Operating profit doubled to $377 million
• Interim dividend of 43.9 US cents per share
• Net debt down 30% to $1.72 billion

Chief executive Keith Barr said:

“We saw continued strong trading in the first half of 2022 with increased demand for travel in most of our markets. This brought group RevPAR very close to pre-pandemic levels in the second quarter.

“IHG’s clear strategy over the last five years has seen us emerge from the pandemic a stronger and more resilient company, delivering on key priorities and progressing our ambitious 2030 Journey to Tomorrow responsible business commitments.”

ii round-up:

Global hotelier InterContinental Hotels Group (LSE:IHG) today reported a continued recovery from the pandemic, with an additional $500 million share buyback programme underlining its confidence in the outlook.

Revenue per available room (RevPAR) rose 51% compared to the first half of 2021, although is still down 10.5% compared to pre-Covid levels. A recovery in the Americas and Europe is still held back by further lockdowns in China.

Intercontinental shares fell by around 1% in UK trading having come into this latest announcement up almost 5% year-to-date. Shares for Premier Inn owner Whitbread (LSE:WTB) are down around 12% during 2022, while the FTSE All World index has fallen by around 15%. 

• The investment lessons from the 1970s as inflation soars and rates rise
• Shares for the future: our own Warren Buffett names 23 shares in his ‘buy’ zone
• 12 stock ideas for brave bargain hunters

A recovery in the Americas and Europe for IHG has been held back by further lockdowns in China. Operating profit doubled to $377 million while a resumed interim dividend payment of 43.9 US cents per share comes in 10% above its pre-Covid 2019 level. 

Leisure travel is improving, with dollar strength currently supporting travel from the US to Europe, but with business travel and group meetings and events still lagging.

Broker UBS repeated its 'buy' rating on the shares following the results, with the numbers largely ahead of its forecasts. 

ii view:

InterContinental has around 6,000 open hotels in more than 100 countries and a further 1,800 in its development pipeline. Its portfolio of brand names includes Crowne Plaza, Holiday Inn, and InterContinental itself. During its last 2021 financial year, the US generated its biggest slug of revenues at just under 44%. The UK accounts for around 5%. 

For investors, the ongoing hit to trading at its China business remains a hinderance, labour shortages are a challenge, while business travel and group meetings and events may not return to their pre-Covid levels given the increased use of technology and video conferencing. 

On the upside, InterContinental offers both brand and geographical diversity, with options from luxury to essential, or value brands available. New hotels continue to be opened, net debt is down year-over-year, while the interim dividend payment has been restarted at 10% above its pre-Covid 2019 level. On balance, and with the consensus analyst estimate of fair value sat at over £55 per share, scope for longer term optimism appears to persist. 

Positives: 

• Both brand and geographical diversity
• $500 million share buyback programme 

Negatives:

• Uncertain economic and pandemic outlook 
• Heightened global geopolitical tensions

The average rating of stock market analysts:

Cautious buy