After a bruising run for European travel stocks, Deutsche Bank has softened its stance on Intercontinental Hotels Group PLC (LSE:IHG), upgrading the UK-listed operator of Holiday Inn and Crowne Plaza from 'sell' to 'hold'.
The move comes despite a modest cut to the bank’s target price, trimmed from 8,000p to 7,750p, and follows a 30 per cent slide in IHG’s shares over the past two months.
The change in recommendation is part of a broader assessment of the global tourism sector, which Deutsche says faces a “short-term storm of uncertainties”, including fears around US tariffs, geopolitical instability in the Middle East, and the war in Ukraine.
Despite these headwinds, the bank believes long-term travel trends remain firmly intact.
According to the report, global tourist numbers are forecast to hit a record 1.6 billion in 2025, up from 1.45 billion in 2024 and close to pre-pandemic highs.
That would mark a return to the 3% to 5% compound annual growth rate seen before Covid.
By 2040, the United Nations World Tourism Organization expects the number of travellers to reach 2.4 billion, powered by rising wealth and growing demand from Asia, Africa and Latin America.
For now, though, the short-term outlook is cloudy. The bank expects revenue per available room (RevPAR) in mature hotel markets to rise only in the low single digits this year, with stronger gains likely in the Mediterranean, Middle East and Asia Pacific. Tour operators, meanwhile, should enjoy high single-digit growth over the summer.
European hotel shares have fallen 13% since January, with tour operators down 19% - underperforming the wider Stoxx 600 index.
Valuations have taken a hit. Deutsche notes that US hotels are trading back at historical average earnings multiples (around 23 times expected 2025 profits), while European hotel groups remain cheaper at just 13 times. Tour operators are even more discounted, with a sector average price/earnings ratio of just 7.7.
Among the bank’s preferred picks are Accor and Melia in Europe, and UK-listed Whitbread PLC (LSE:WTB), Jet2 PLC (AIM:JET2) and On the Beach Group (LSE:OTB).
IHG, while no longer in the sell pile, still faces earnings pressure and trades at a valuation above its regional peers.
Despite the downgrade to its earnings forecasts, Deutsche expects upcoming first-quarter updates, starting with Scandic Hotels this week, to show a strong start to the year, with full-year guidance “cautiously optimistic”.
IHG shares were up 1% at 7,780p.