Some investors were booking out of Intercontinental Hotels Group PLC (LSE:IHG) after its results were worse than expected, but analysts said cash flow and the share buyback were stronger, and the outlook is encouraging.
The Holiday Inn owner reported operating profits of US$828mln, which was slightly behind the US$831mln average City forecast.
Free cash flow also improved for the hotelier, increasing to US$565mln, which Barclays said was well ahead of its prediction of US$478mln.
Reports from the travel sector indicate a continuing recovery since the pandemic, when nearly all flights were halted, and most hotels were closed.
As well as Heathrow airport reporting last week that footfall in January at the airport had more than doubled year-on-year, today's results from the FTSE 100-listed group are likely a helpful gauge of how the industry is faring.
IHG’s share price is now at £55.30, double the price of its lowest point in lockdown and alongside the record highs witnessed in July 2019.
Looking ahead to 2023, Barclays believes the consensus forecast on revenue per available room (revpar), unit growth and underlying earnings, “will be likely unchanged”.
Barclays added it therefore expected little share price reaction from today’s results, apart from some selling on the news.
However, analysts at Hargreaves Lansdown argued that shares slipped today as the results were “not quite as buoyant as the investors had been counting on”.
Shareholders eyes will now likely look to China’s recovery, IHG’s full year revenue in the country was down 13.5% compared to 2021.
“The re-opening of the vast country and the renewed appetite for trips among wealthier Chinese should bode well for IHG’s ongoing recovery,” Streeter added.
Barclays remain slightly cautious on the road to recovery, reflected by its target price of £58 only a 4% upside to the current price.
On the other hand, analysts at Jefferies suggested the selling was an opportunity compared to their £62 target price.
"We are buyers of IHG's exposure to the reopening (Asia/business/groups) and the more resilient US consumer, pricing sophistication, low inflation risk and robust balance sheet".
They also note that IHG shares trade at a 16% discount to rival Marriott compared to a 10-year average 6% discount.