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Intercontinental Hotels a resilient business at a fair price, UBS says as it upgrades the stock

UBS raised its recommendation on IHG to ‘neutral’ from ‘sell’ and lifted its target price to 4,275p from 4,000p
IHG is the parent company of Holiday Inn and Crowne Plaza hotels

Intercontinental Hotels Group PLC (LON:IHG) is a resilient business at a fair price following a decline in the share price, UBS said.

UBS raised its recommendation on the stock to ‘neutral’ from ‘sell’ and lifted its target price to 4,275p from 4,000p.

READ: InterContinental Hotels weak as 1% Q3 RevPar rise disappoints; to pay US$500mln special dividend

“Previously we rated IHG sell as we felt the trading multiples did not reflect our concerns about a slowing US RevPAR (revenue per available room) cycle and challenges on the distribution front,” the investment bank said.

“During the course of 2018 we saw US RevPAR slow and the trading multiple of IHG contract. We now feel the trading multiple of the shares more accurately reflects our concerns (over the last 24 months the shares de-rated from c15x to c12x 12 month EBITDAR) and we upgrade the shares from sell to neutral.”

The US represents about 80% of the group’s total earnings (EBIT) so RevPar growth is “clearly important”, UBS said.

UBS expects RevPar in the US to rise 2.7% in 2019 and estimates total RevPar growth of 2.5%.

“Furthermore, commentary from Hilton, Marriot and industry commentators suggests that US RevPAR is likely to be low single digits in 2019,” it said.

“However, with the acceleration of pipeline delivery, we estimate that Group RevPAR would need to fall by more than 3.5% before 2019e EBIT could fall below our 2018e EBIT forecast.”

UBS has downgraded its net income forecast down by 5.5% in 2019 and 2020, mainly due to the increased interest related to a recent bond issuance and the future payment of the special dividend.

In late morning trading, shares in IHG fell 1.05% to 4,246p. 

IHG has about 5,000 hotels across nearly 100 countries through its brands including the Holiday Inn, Crowne Plaza, InterContinental and Staybridge Suites.

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