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Intercontinental Hotels Group - Steady results, CEO to retire

Nicholas Hyett | 5 May 2017 | A A A
Intercontinental Hotels Group - Steady results, CEO to retire

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IHG saw revenue per available room (RevPAR) increase 2.7% in the first quarter, with the group's total number of rooms up 3.4 %to 767,000.

Long serving CEO Richard Solomons will retire at the end of August, to be replaced by Chief Commercial Officer Keith Barr.

The shares fell 1.9% following the announcement.

Our View

InterContinental Hotels Group (IHG) is now a 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 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 its global, online bookings system. In both cases, IHG collects revenues from the hotels, in one form or another, without tying up capital in actually owning the properties.

The transition away from owning hotels is largely at an end, with the group holding just $419m of property assets. From here on the focus will be on attracting new owners to the brands and the cash generation potential of the managed and franchised businesses. Together these are the foundations on which the group's ambition of a growing ordinary dividend are built.

The final quarters of 2016 saw growth in revenue per available room (RevPAR) slow, largely as a result of poor performance in oil heavy regions to which IHG is heavily exposed, as well as a fall in spending by wealthy Chinese in Hong Kong and Macau. More recently the recovery in the US shale market seems to be fuelling a bounce back in the US, which has struggled of late.

Current trading aside, IHG has a significant pipeline of new hotel rooms which should support revenue growth even if RevPAR does continue to slow. The roll-out of new rooms is stepping up in China, and the existing presence in the US market should give IHG a strong presence in two attractive markets.

Despite near term headwinds, we feel that the group's potential to generate cash through its capital-light approach should provide some reassurance 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 currently forecasting a prospective yield of around 1.9%.

First Quarter Results

RevPAR growth was driven by improvements in both occupancy (+1.2%) and pricing (+0.8%), as well as benefiting from the later timing of Easter.

Growth was driven by a strong performance in Europe and China, delivering RevPAR growth of 6.9% and 3.8% respectively. The UK, Germany and Russia all performed well, while conditions remain tough in Hong Kong and Macau. The US saw some recovery in oil producing regions, although low oil prices continue to weigh on operations in the Middle East.

IHG opened 49 new hotels in the quarter, including its 300th hotel in Greater China. The addition of 112 hotels (14,000 rooms) to the pipeline, including 10,000 in the Holiday Inn brand, represents the fastest rate of first quarter growth since 2008 and takes the pipeline to 232,000 rooms.

CEO Richard Solomons said that; "despite the uncertain economic and political environment in some markets, we remain confident in the outlook for 2017 and our ability to deliver sustainable growth into the future."

Unless otherwise stated, all estimated figures, including prospective dividend yields, are taken from a consensus of analyst forecasts compiled by Thomson Reuters. These estimates should not be taken as a reliable indicator of future performance.

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.