It could be a tale of two travel companies in the coming week, with hotel colossus InterContinental at a 'high water mark', according to one analyst, while tour operator TUI is still paddling furiously to catch up.
Equity research analysts at Peel Hunt maintain a “hold” strategy for British multinational hospitality company InterContinental Hotels Group in the lead up to interim results due on Tuesday August 9.
Revenue guidance for the first half of 2022 stands at US$814mln, while operating profits are expected to come in at US$360mln.
With consumer-driven leisure travel being a key driver of post-Covid-19 recovery, coupled with strong results from peers Hilton and Marriott, InterContinental’s end-of-year forecast has been upgraded.
Peel Hunt expects operating profits to hit US$816m for the whole of 2022, a 6% upgrade from prior guidance.
High-water mark for IHG?
The outlook looks positive, but there are concerns that next week’s interims could be the high-water mark for the company.
“IHG’s share price is broadly back at pre-pandemic levels, which makes sense given the rapid recovery in demand to above pre-pandemic levels in some key markets, and the structural improvements in the business,” said analyst Ivor Jones.
Since there is “no freewheeling on the hotel cycle,” per Jones’ words, perhaps IHG shares don’t have much more room to grow though.
As such, Peel Hunt has reiterated its 4,600p target price, suggesting that the closing price of 4,947p on Friday was a tad much.
Elsewhere in the leisure sector
German leisure, travel and tourism company TUI is expected to release its third-quarter results on Wednesday August 10.
Dual listed in London and Frankfurt, the multifaceted company has its tentacles in the airline sector as well and the hotel sector, thus it faces some different challenges to the likes of InterContinental.
Flight disruptions and cancellations have generated a lot of bad press for TUI and its peers, while a new share placing in March to repay government loans went down poorly with existing shareholders.
On average, analysts expect underlying earnings (EBIT) of €43mln, though its not clear if this is before or after 'disruption costs', with a loss per share of US$0.04.
At UBS, analysts forecast third-quarter underlying earnings (EBIT) before disruption costs, of €75mln and forecast disruption costs in the quarter of around €75m, leading to a big fat zero.
"We expect the tour operator traffic in Q3 around 80-85% of 2019 levels, with a strong result in hotels and a sequential improvement in cruises."
At its second quarter TUI reported average selling prices up 20% in the tour operating businesses, reflecting higher prices and a positive mix from longer stay durations.
Pricing in Q3 is expected to be similar, although in the lates season in the Q4 there is expected to be some erosion in pricing in line with historical trends, with passing through of higher aviation fuel costs alone would need a price increase of around 10% in the final quarter.
"Therefore we would expect the potential margin accretion from high ASP is more limited than the headline ASP would suggest."
UBS predicted the cash burn in the winter months would see upwards pressure from higher prepayments and also potentially from people book holidays for next summer later than usual.
The analysts believe TUI will be a beneficiary of its long term contracts with suppliers in hotels, delaying the inflationary pressures, while it is able to increase prices for its tour operator packages and not see a full increase in accommodation costs until 2023.
"We expect investors’ interest also to be focused on TUI’s plans to further strengthen the balance sheet" as well hearing what the timeline will be for the reduction in its credit facility from German state-owned bank KfW.