InterContinental Hotels Group returns more capital

InterContinental Hotels Group (IHG) is bullish on the post-pandemic leisure and travel recovery. The Holiday Inn owner launched a new $750mn (£624mn) share buyback programme and bumped up its final dividend by 10 per cent on the back of some encouraging demand trends in its full-year results.

Management pointed to a “further significant improvement in trading” in the year. This was evident in the figures. Revenue per available room (revpar) and profitability surpassed pre-pandemic levels in the second half of the year. Annual revpar was ahead of 2019 postings everywhere outside of the Greater China region. 

Boosted by leisure travel – business and group travel has been slower to recover – operating profits boomed in both its Americas and Europe, Middle East, Asia and Africa divisions. Unsurprisingly, given the strict zero-Covid lockdown policy of the Chinese Communist Party, profits fell by 60 per cent in Greater China. But the company can look forward to a boost from the reopening of that market as this year progresses.  

With an estate of more than 6,000 hotels and 1,800 new sites in the pipeline, IHG is well-placed to benefit from continuing good news for hotel and resort demand. But this isn't guaranteed. There are, of course, major headwinds provided by the cost-of-living crisis and inflationary pressures. 

Peel Hunt analysts think that “2023 will be a good year for IHG", given robust leisure demand and the scope for a recovery in mid-market business travel. While the shares are rated significantly below their 5-year average – they trade at a consensus 20-times forward earnings according to FactSet, compared to 26-times historically – we think that the outlook is reflected in the current valuation. Hold.

Last IC view: Hold, 4,934p, 09 Aug 2022