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Intercontinental Hotels has an avid fan in Credit Suisse

IHG has a mixed record with new brand launches, but CS thinks the market opportunity for avid hotels is enormous - if the group gets it right.
Avid Hotels
The first branded avid hotel should be up and running in early 2019

In the wake of Intercontinental Hotels Group PLC's (LON:IHG) launch of its avid hotels mid-scale brand, Credit Suisse has upgraded the hotels operator to 'outperform'.

The Swiss bank think avid “should be the most significant addition to IHG's brand stable in more than 25 years." 

Intercontinental's (IHG) plans for a new mid-scale brand were first trailed in June, and the brand name was officially launched in September, with the group saying “avid hotels is franchise-ready beginning today, officially marking the start of licensing in the US for this much-anticipated new brand”.

IHG expects the first avid hotels locations to begin construction early next year, with the first expected to open in early 2019.

The hotels group said the price point is expected to be around US$10-15 a night lower than the Holiday Inn Express brand.

Credit Suisse (CS) noted that IHG has a mixed record of successful brand launches, though Holiday Inn Express, launched in 1991, has been a true “category killer”.

The market opportunity for avid is worth about US$20bn, with around 14mln potential customers, according to CS.

“Although there could be a concern that IHG is entering into a declining market, we believe this is a sign the market has been under-served,” CS said.

“With the strength of IHG’s system, its brand credential (e.g. Holiday Inn Express) and weak competition, we believe there is significant potential for Avid in this market,” it added.

The pace at which franchisees sign up to run avid hotels will be a share price catalyst, as will a special dividend in February 2018 – if IHG pays one.

CS's rating moved up from 'neutral' to 'outperform' and the price target rose to 5,100p from 4,600p.

IHG's shares currently trade at 4,253p, up 1.9%.

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