Jefferies downgrades IHG to 'hold', raises target price

(Sharecast News) - Analysts at Jefferies lowered their rating on hospitality giant Intercontinental Hotels from 'buy' to 'hold' on Wednesday but raised their target price on the stock from 6,400.0p to 8,400.0p.

Jefferies said IHG was "a long-term compounder", with a growth algorithm that rivals Marriott's. However, it noted consensus appears "well-set for 2024/25", and said its valuation was full and that, alongside weak core US growth, meant it now felt it right to move to the sidelines.

The broker added that key catalysts should arrive in the second half, with credit card opportunities, an inflection in net unit growth and greater visibility around the US market.

"We value IHG using a DCF methodology. Our price target rises from £64 to £84, driven by: 1) introducing explicit forecasts for 2026-27, with growth that is higher than our medium-term assumptions, 2) rolling forward DCF by one year to 2034E, 3) factor in stronger-than-expected margins in EMEAA and Greater China, 4) factor in a reduced share count from buybacks," said Jefferies.

"We raise EPS by +2% in FY25E. EBIT margins came in stronger than expected for FY23 in EMEAA and Greater China. We model continued margin accretion on this new higher base, which drives more meaningful EBIT and net income accretion in FY25 and outer years. Diluted EPS rises more modestly as we factor in a higher share count (due to recent share price appreciation)."

Reporting by Iain Gilbert at Sharecast.com