ii view: InterContinental Hotels shrugs off China decline

A franchised asset-light business model generating cash for sizeable shareholder returns. Buy, sell, or hold?

22nd October 2024 11:40

by Keith Bowman from interactive investor

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Third-quarter trading update to 30 September

Revenue per available room (RevPAR) up 1.5%
New rooms opened of 17,500 or 98 hotels
New rooms signed of 19,200 or 129 hotels
On track to return over $1 billion to shareholders in 2024 via share buybacks and dividends

Chief executive Elie Maalouf said:

"We are pleased with the latest trading performance and another strong period of development activity, and we are on track to finish 2024 in line with market expectations.

“We remain confident in our abilities to capitalise further on our scale, leading positions and the attractive, long-term demand drivers for our markets."

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ii round-up:

Global hotelier InterContinental Hotels Group (LSE:IHG) today detailed sales marginally shy of City forecasts with strength in Europe, the Middle East, Asia, and Africa (EMEAA) countered by weakness in China given tough pandemic related comparatives.

InterContinental, which charges fees to property owners to operate and run their buildings under its hotel brands, outlined revenue per available room (RevPar), a key industry metric, of 1.5% for the third quarter to late September - below analyst hopes for 1.9%.

Shares in the FTSE 100 company fell 1% in UK trading having come into this latest news up around a fifth year-to-date. That’s similar to rivals Marriott International Inc Class A (NASDAQ:MAR) and Accor SA (EURONEXT:AC) and ahead of a 7% gain for the FTSE 100 index.

InterContinental operates 19 global brands from budget to luxury names and including Holiday Inn, Crown Plaza and Six Senses.

RevPar for Greater China, accounting for around 8% of 2023 revenues, declined 10.3% year-over-year, hit by comparatives including resurgent demand a year ago following post pandemic openings and changes public holiday dates.

Revenues on the same basis for Europe and beyond (EMEAA), accounting for 31% of 2023 revenues, led performance during the quarter, expanding 4.9% year-over-year.

RevPAR at InterContinental’s core Americas region, generating just over half of all 2023 sales, rose 1.7%, with US sales up 1.2%.

Management opened 17,500 rooms or 98 hotels during the quarter, up from 7,700 in Q3 2023. New rooms signed totalled 19,200 rooms or 129 hotels, up 14% from a year ago.

Share buybacks year-to-date totalled $614 million of 2024's planned $800 million. IHG continues to expect full year trading to match current City forecasts.

Full-year results are likely to be announced mid-February.

ii view:

Headquartered in Buckinghamshire, InterContinental operates more than 6,500 hotels in over 100 countries. Employing more than 370,000 people between it and franchisees, other group brands include Kimpton, Candlewood Suites, Regent and Hualuxe in China.

For investors, global geopolitical tensions and potential for widening wars in both the Middle East and Ukraine cannot be forgotten. Heightened borrowing costs continue to squeeze consumers and corporate customers initiating business travel. Costs for businesses, and including wages, are now higher, while the group’s expanding China operations come against a backdrop of continued tensions with the West.

More favourably, geographical and brand diversity are high. New hotels continue to be signed and opened. An asset light business model is being pursued, while shareholder returns focus on both share buybacks and a forecast dividend yield of around 1.5%.

For now, and despite ongoing risks, 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:

Weak 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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