Intercontinental Hotels Group PLC (LSE:IHG) shares have been “left behind” but its dividend prospects and exposure to the US have led to Peel Hunt upgrading to a ‘buy’ recommendation.
The broker moved from its previous ‘hold’ rating and upped its target price to 5,750p from 4,600p, focusing on the owner of the Crowne Plaza and Holiday Inn hotel chains is forecast 10% dividend growth plus an annual share buyback of US$500mln.
“At its core, IHG is a global franchise business which we believe is underappreciated in the UK market where it has no peers and where it is associated with the cyclical and capital-intensive hotel business,” analysts said in a note on Friday.
In contrast to the UK market, the FTSE 100-listed group’s commercial core is in mid-market hotels in the US heartland where trading has already recovered above 2019 levels and growth of its hotel portfolio is “set to accelerate” after management spent time weeding out underperforming sites.
The analysts also see IHG’s share price as having been “left behind” due to being coupled to the undervalued UK market and domestically-focused subsector.
But given its primary exposure is to the US economy and with the mid-market subsector having proven to be resilient, they believe the valuation “will look increasingly compelling as 2023 goes on”.
The hiked target price is based on an P/E multiple of 19 times 2023 expected earnings, which is the level the company was trading at in 2019 when it became apparent that it was poised to accelerate its system growth rate.