Killik optimistic about IHG after strong first quarter

2nd May 2014 12:22

Killik & Co has maintained a 'buy' recommendation for Holiday Inn and Crowne Plaza owner InterContinental Hotels Group (IHG) after a 'strong set of first-quarter results' from the company.Revenue per available room (RevPAR) in the first quarter increased by 6%, with occupancy and room rates growing by 2.4 and 1.9 percentage points, respectively. RevPAR growth was ahead of the 5% expected by the market and above the 4.4% rate achieved in the fourth quarter of 2013, Killik said.The company also announced another special dividend after the completion of two hotel disposals, and said it is reviewing opportunities for further asset sales.The broker said that IHG has a strong business model in an attractive industry: "The group operates a highly scalable, asset-light model, based on franchising and management contracts, with low capital intensity and high returns, and generates a smoother earnings and dividend profile across the cycle."The global hotel industry is likely to be a "long-term beneficiary" of the increasing size of the middle class in emerging markets, the growth in their disposable income and the greater purchasing power of their local currencies, Killik said. Meanwhile, it should also benefit from the increased spending power of ageing 'baby boomers' in the West.The stock trades at 20 times consensus earnings estimates for 2015, "a rating we believe is justified given the high return on capital and the prospect of further shareholder returns", Killik said."We remain positive on the shares, given the potential for growth driven by economic recovery, an attractive pipeline, margin enhancement and balance sheet utilisation."The stock was 8.6% higher at 2,198.33p by 12:32 on Friday.BC