ii view: InterContinental Hotels boosts profits and share buyback

Shares in this global hotelier have comfortably outperformed the FTSE 100 year-to-date. Buy, sell, or hold?

Full-year results to 31 December

• Revenue up 33% to $1.84 billion (£1.53 billion)
• Operating profit up 55% to $828 million (£687 million)
• Final dividend up 10% to 94.5 US cents per share
• Total dividend for the year of 138.4 US cents per share
• New share buyback of $750 million
• Net debt down 2% to $1.85 billion

Chief executive Keith Barr said:

“Our strategy over the last five years has significantly strengthened our brand portfolio and seen substantial investment to innovate our technology and distribution platforms. 

“IHG's overarching ambition is to deliver industry-leading growth in our scale, enterprise platform and performance, doing so sustainably for all stakeholders including our hotel owners, guests and society as a whole. “

ii round-up:

Global hotelier InterContinental Hotels Group (LSE:IHG) today detailed a further recovery from the pandemic as annual profit rose and the owner of brands like Holiday Inn and Crowne Plaza announced a new $750 million share buyback programme.

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Operating profit climbed 55% in 2022 to $828 million (£687 million) as second half Revenue per available room (RevPAR), a key industry metric, topped pre-pandemic 2019 levels. 

IHG shares fell by around 2% in UK trading having come into this latest announcement up by almost a fifth year-to-date. That’s similar to Premier Inn owner Whitbread (LSE:WTB) and comfortably ahead of a 5% gain for the FTSE 100 index during 2023. 

Accompanying management outlook comments pointed to expected ongoing strong leisure demand in many markets, as well as a further return of business and group travel and the continued reopening of China.

Fourth quarter RevPAR growth for its Americas and European, Middle East, Asia and African (EMEAA) regions of 9% and 8.8% respectively helped counter a 42% fall in China given still high levels of travel restrictions. 

The final dividend rose 10% year-over-year to 94.5 US cents per share, with the total 2022 payment of $138.4 US cents per share coming as it reinstated an interim dividend not paid in the Covid hit 2021. 

The new $750 million share buyback follows a previous $500 million programme announced as of its first-half August results. 

A first-quarter trading update is scheduled for 5 May. 

ii view:

A constituent of the FTSE 100 index, InterContinental operates more than 6,000 hotels in more than 100 countries with a further 1,800 in its development pipeline. Employing over 320,000 people, its 18 brand names range from luxury & lifestyle such as InterContinental itself to everyday essentials like Holiday Inn Express. Its business model is asset light with other organisations usually owning the hotels and it charging fees to operate and run under its brands. 

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For investors, the uncertain economic outlook including rising interest rates and a cost-of-living crisis cannot be dismissed. Elevated business costs generally plus broader industry labour shortages warrant consideration, as does increased use of technology and video conferencing which reduces demand for business travel. 

On the upside, IHG enjoys both geographical and brand diversity, new hotels continue to be opened with a further 269 added during 2022, net debt declined by 2% year-over-year to $1.85 billion, while shareholder returns include both a new $750 share buyback programme and an estimated future dividend yield in the region of 2%. 

For now, and with economic uncertainty pitched against a return to business as normal in China, this well managed hotelier remains deserving of its place in diversified investor portfolios. 

Positives: 

• Both brand and geographical diversity
• $750 million share buyback programme 

Negatives:

• Uncertain economic outlook 
• Heightened global geopolitical tensions

The average rating of stock market analysts:

Strong hold