InterContinental Hotels Group boosted by Americas

InterContinental Hotels Group (IHG) revealed a $500mn (£413mn) share buyback programme and reinstated its interim dividend as the hospitality business – which owns Holiday Inn and Crowne Plaza – benefitted from the removal of Covid-19 travel restrictions. But performance remains below pre-pandemic, and a challenging trading period lies ahead.

A rebound in business and group bookings helped IHG’s Americas market, its largest, put in a solid half against pre-pandemic comparisons. Revenue per available room (‘revpar’), a key metric management uses to analyse hotel performance, was up by 3.5 per cent against 2019 and an operating profit of $351mn bettered the same year by more than 2 per cent.

But at an overall level, revpar was down by 11 per cent against 2019 despite climbing by more than half against the pandemic-hit 2021. While sales in the Americas and Emeaa (Europe, Middle East, Asia and Africa) were up by 45 and 185 per cent respectively, trading in China was knocked by local travel restrictions, and technology fee income struggled for similar reasons.

Thinking about the short to medium term, it would be wise to be cautious when making predictions for the outlook for travel and hospitality. Inflation and cost pressures could hit leisure and corporate demand in the second half after some post-pandemic respite. Chief executive Keith Barr is, however, “confident in [the] business model and the attractive industry fundamentals that will drive long-term sustainable growth”.

Despite an uncertain outlook, investors will be cheered by the return of capital payouts. The share buyback programme, which starts now and runs until 31 January 2023 at the latest, could feasibly be followed by the return of chunky special dividends. Net debt to adjusted cash profits was 2.1 times at 30 June, below the target range of 2.5 to 3 times.

Peel Hunt analysts said that IHG “is well insulated from the direct impact of increased energy prices, but less immune to more general economic weakness filtering through to its hotel guests” and that these results “may represent a high-water mark in terms of hotel industry confidence for a while”. The shares trade at 17 times the broker’s forward 2023 earnings forecast, which looks attractive against the five-year average of 26 times according to FactSet data. Headwinds are incoming, but progress was made in the half. Hold.

Last IC view: Hold, 5,031p, 22 Feb 2022