Bank of America has given Intercontinental Hotels Group PLC (IHG) a boost reinstating coverage with a 'buy' rating and 7,200p price target, implying 18% potential return.
It describes IHG as a quality business (asset-light, geographically diversified), but notes its EV/EBITDA multiple discount to US peers has expanded to 14% - wider than historically.
BofA finds this unjustified given its high returns (>30% ROIC), earnings growth (11% 2023-27E) and cash return potential.
“We think system growth concerns are overblown and strong RevPAR should be sustainable amid resilient travel demand,” it said in a research note.
It also believes around 26% of market cap could be returned over the next three years in dividends and share buybacks, given the strong free cash flow.
BofA is bullish on the European hotels sector, rating Accor 'buy' with Whitbread PLC (LSE:WTB) given a 'neutral' rating.
“We believe now is a good time to gain exposure to companies with geographically diversified hotel portfolios, strong balance sheets and cash generative asset-light models, with attractive and improving cash return to shareholders,” the bank said.
Shares in IHG are up 1% at 6,286p while Whitbread is 0.4% higher at 3.642p.
In Paris, shares in Accor rose 1.1% to €34.36.