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InterContinental Hotels Group PLC ADR IHG

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Morningstar’s Analysis

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Economic Moat

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InterContinental Sees Q2 Demand Improvement as It Focuses on Portfolio Quality; Shares Overvalued

Dan Wasiolek Senior Equity Analyst

Analyst Note

| Dan Wasiolek |

InterContinental’s second-quarter revenue per available room, or revPAR, returned to 57% of 2019 levels, an improvement from the 49% printed three months earlier. This sequential lift compares with narrow-moat peers Marriott and Hilton, which saw revPAR expand to 56% and 62% of 2019 levels in the second quarter, respectively, up from 42% and 45% in the first quarter. The slower rebound was driven largely by transitory issues, such as relatively high exposure to Greater China (17% of rooms), which is recovering ahead of other regions and brings with it a lower average room rate. The firm also carries above average group and European exposures, which have been slower to rebound, but still should lift as demand broadens out into 2022. Encouragingly, IHG’s second-quarter U.S. (around mid-50% of rooms) revPAR reached 77% of 2019 levels, a strong showing compared with the 67% and low-60% at Hilton and Marriott, respectively. We may lower our IHG 2021 revPAR toward low-60s of 2019 versus high-60s but still expect a full recovery by 2023. With this offset by time value, we don’t expect a material change to our $60 fair value estimate, leaving shares slightly overvalued.

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Company Profile

Business Description

InterContinental Hotels Group operates 884,000 rooms across 17 brands addressing the midscale through luxury segments. Holiday Inn and Holiday Inn Express constitute the largest brand, while Hotel Indigo, Even, Hualuxe, Kimpton, and Voco are newer lifestyle brands experiencing strong demand. The company launched a midscale brand, Avid, in summer 2017 and closed on a 51% stake in Regent Hotels in July 2018. It acquired Six Senses in February 2019. Managed and franchised represent 99% of total rooms. As of Dec. 31, 2020, the Americas represents 58% of total rooms, with Greater China accounting for 16%; Europe, Asia, the Middle East, and Africa make up 26%.

Contact
Broadwater Park
Denham, Buckinghamshire, UB9 5HR, United Kingdom
T +44 1895512000
Sector Consumer Cyclical
Industry Lodging
Most Recent Earnings Dec 31, 2012
Fiscal Year End Dec 31, 2021
Stock Type
Employees 13,002

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