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Travel rebound pays dividends at Intercontinental Hotels Group

Holiday Inn owner swings back to a profit in 2021
Travel rebound pays dividends at Intercontinental Hotels Group
  • Fewer travel restrictions and rising vaccination rates increase travel demand
  • Revenue per available room still 30 per cent lower than pre-pandemic

The longed-for, albeit gradual, return of international travel helped push InterContinental Hotels Group (IHG) into positive territory, with the dividend restored and shares edging up by 3 per cent on results day.

Travel demand has started to recover, and occupancy rates of InterContinental’s 880,000 hotel rooms back up above 50 per cent in the year to 31 December – a step up after travel restrictions left two-thirds of its rooms in Europe, Middle East, and Africa empty in 2020. 

Knock-on improvements in revenue per available room (RevPAR), which continued to rise quarter-on-quarter, also propelled the Holiday Inn owner’s full-year room sales up 46 per cent compared with the previous year. 

This is still a good 30 per cent below pre-pandemic levels, but encouragingly its US segment saw fourth quarter room sales only 7 per cent lower than the same period in 2019 – a much swifter recovery than mainstream industry forecasts.

Chief executive Keith Barr said demand for travel is increasing “as vaccination rates rise and restrictions are lifted around the world”, a rosy outlook echoed by rival hotel chains Marriott (US: MAR) and Hilton (HLT) in their quarterly results last week. 

In the meantime, InterContinental also continued disposing of poorly-performing Holiday Inn and Crowne Plaza hotels, instead investing in six properties for its new luxury brand, Vignette Collection. The hotel chain is increasing its footprint in the faster-recovering  high end of the market, which accounts for 42 per cent of InterContinental’s overall pipeline.

Investors will need to keep a “close eye” on how InterContinental fares in the face of 2022’s turbulent macroeconomic outlook, due to rising costs of living and inflationary pressures, according to Richard Finch, analyst at Edison Group. 

The group’s hefty $1.8bn net debt position was reduced over the past year, but still builds in an extra level of vulnerability if demand for business travel fails to rebound. Hold.

Last IC view: Hold, 4615p, 10 Aug 2021.

INTERCONTINENTAL HOTELS GROUP (IHG) 
ORD PRICE:5,031pMARKET VALUE:£9.3bn
TOUCH:5,028-5,034p12-MONTH HIGH:5,568pLOW: 4,314p
DIVIDEND YIELD:1.3%PE RATIO:47
NET ASSET VALUE:*NET DEBT:$1.81bn
Year to 31 DecTurnover ($bn)Pre-tax profit ($mn)Earnings per share (¢)Dividend per share (¢)
20174.08656280104
20184.34482184114
20194.63542210126
20202.39-280-1430.0
20212.9136114585.9
% change+22---
Ex-div:31 Mar   
Payment:17 May   
*£1 = $1.36 *Negative shareholder funds, including intangible assets equivalent to 649¢ per share