Credit Suisse is checking out of InterContinental Hotels PLC (LON:IHG) after a long stay, downgrading its rating to ‘neutral’ from ‘outperform’, principally on valuation grounds, having only marginally hiked its target price.
In a note to clients, the Swiss bank’s analysts said the downgrade comes following a 40% re-rating by the FTSE 100-listed stock since early 2016 meaning there is just 7% potential upside to its new target.
They raised their target price for IHG to 4,600p, up from 4,500p after updating their estimates, mainly for currency factors, with the shares currently trading at 4,409p, down 0.6%, or 25p on the day.
The analysts also said they saw a “balanced backdrop of positive and negative risks for one of the highest quality companies we cover.”
They added that momentum for key industry metric, revenue per available room (RevPAR) at the Holiday Inns owner is “subdued and weaker than peers “, with US real RevPAR having flat-lined for 12 months despite high occupancy levels.
However, the analysts noted that” US macro momentum looks robust and our lead indicator driven RevPAR model points to an acceleration to 5% RevPAR growth in H2 2017”.
IHG “could be a beneficiary of industry consolidation”
The analysts concluded as well that IHG “could be a beneficiary of industry consolidation and/or lower US taxes.”
They also pointed out that IHG “generates significant excess cash and we see scope for 34% of today's market cap to be returned via dividends and share buybacks by 2021”.
Credit Suisse’s downgrades comes just days after US investment bank Morgan Stanley has also cuts its stance on IHG in a European hotels sector review highlighting weaker RevPAR and space growth performances.
Morgan Stanley downgraded IHG’s rating to ‘underweight’ from ‘equal-weight’, although it raised its target price to 4,300p from 3,800p.