InterContinental Hotels Group PLC’s (LON:IHG) share price fall so far this year fairly reflects the potential impact from coronavirus and other industry headwinds, said UBS as it upgraded its rating.
The Holiday Inn and Crown Plaza owner has also been facing investor concerns about slowing revenue per available room (revpar) growth in the US and a balance sheet that has not allowed for near-term special dividends or share buybacks.
Also, said the UBS analysts, the FTSE 100 group’s valuation had been “stretched”.
Given the share price fall, which continued with a further 10% decline to 3,401p on Thursday, UBS removed its previous ‘sell’ label and upgraded to ‘neutral’.
After January revpar in China fell by double digits and a worse result is anticipated for February, UBS forecasts a 30% fall for China revpar for 2020 following a 5% fall in 2019.
But analysts expect a recovery for China in 2021 with a revpar growth forecast of 15%.
“We continue to believe in the China opportunity and think IHG is well placed to exploit the Chinese opportunity given its current presence and future presence (30% of pipeline or c85k rooms exposed to Greater China).”
For the Americas, the analysts are more cautious in the medium-term, though the 2020 forecast is for a revpar fall of just 4%.
With the US revpar cycle “well progressed” and UBS predicts IHG will continue to lag what is expected to be a broadly flat market, even though there is planned growth of 5% for room numbers.
“Nevertheless, the longer the virus impact persists, the greater the risk to our current forecasts,” the Swiss bank’s analysts said.