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InterContinental Hotels Group - Interim dividend up 9%

George Salmon | 2 August 2016 | A A A
InterContinental Hotels Group - Interim dividend up 9%

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InterContinental Hotels Group (IHG) have this morning released first half results, which show global comparable revenue per available room (RevPAR) is up by 2%, assisted by a stronger Q2 in all regions. The shares rose by 1% this morning.

On an underlying basis, IHG's revenue is up 5% to $771m, with operating profit up 10% to $345m. Reported revenue and operating profit was impacted by the 2015 sales of hotels including InterContinental Paris - Le Grand and InterContinental Hong Kong.

In the Americas, comparable RevPAR rose 2.4%. 13,000 rooms were opened in 95 hotels, IHG's fastest pace in 5 years. The New York Barclay was re-opened in April after major refurbishment.

In Europe, comparable RevPAR increased by 2%, with a strong performance in Germany in Q2. In Paris, however, conditions remain challenging as RevPAR declined by 19.5%.

Across the AMEA regions, comparable RevPAR decreased by 0.4%, with the 8% decline in the Middle East holding back growth. The second Hotel Ingigo in the region was opened, in Singapore.

In Greater China, Comparable RevPAR increased 2.4% as the mainland continues to offset declines in Hong Kong and Macau. Underlying revenue and profit growth is 14% and 38% respectively.

Across the Group 35,000 rooms were signed into the pipeline, taking the total pipeline to 222,000 rooms.

Digital revenue is up over 7% year on year. Within this, mobile revenue increased by 32%, with mobile now driving more traffic to the websites than desktop.

Net debt at end of first half of $1,829m is up $1.3bn on the 2015 close, following the payment of the $1.5bn special dividend in May. The interim dividend is raised by 9.1% to 30.0¢.

Richard Solomons, Group CEO, remains confident in the outlook for the remainder of the year, despite some macroeconomic uncertainties, adding that the fundamentals for the industry, and particularly for IHG as one of the largest branded players, remain compelling.

Our View

Intercontinental Hotels Group has now sold the last of its major owned hotels, becoming an almost pure-play hotel management and franchising company, operating brands ranging from Intercontinental at the top end of the market to Holiday Inn Express in the budget hotel sector.

In managed hotels, IHG runs the show on behalf of landlords who own the properties. For franchises, IHG is essentially licencing a brand to the hotel owner, and directing reservations to the property from their worldwide online bookings system. In both cases, IHG is collecting revenues from the hotels, in one form or another, without tying up capital by actually owning the properties.

The transition away from owning hotels has meant that plenty of cash has come into the kitty as the bricks and mortar hotel buildings have been sold off over the last 10 years. Unlike others in the industry, IHG has not got involved in large-scale acquisitions or consolidation, and has instead used the extra cash to pay out special dividends to shareholders. Since 2003, $12.1bn has been returned through specials alone.

With this process largely worked through, one would expect special dividends to become less frequent and investors should focus on the outlook for the ordinary payout.

IHG has a significant pipeline of new hotel rooms which should see the company grow its market share. Roll-out of new rooms is stepping up in China, and the existing presence in the US market should give them a strong presence in two attractive markets.

Although any negative sentiment around the Chinese and wider global economy is still likely to impact IHG in the short-term, we feel that the group's potential to generate cash through its capital-light approach should provide some assurance that the company can maintain its strong track record on the dividend. IHG has either raised or maintained the ordinary dividend every year since 2004, and analysts are forecasting at least another two years of increases out to 2018. At present, the shares offer a prospective yield of around 2.6%.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.