Investors keeping tabs on the unpredictable hotel industry might have noticed the InterContinental Hotels Group (LSE:IHG) share price skyrocketing 30% over the past year. With this sort of move, it’s hard not to sit up and take notice. But is this just a lucky streak, or is there more to the story? Let’s check in and see what’s really going on with the company.
Recovering well
In a market where many companies are struggling to stay afloat following the effects of the pandemic, InterContinental Hotels Group, usually called IHG, seems to be cruising along nicely. The company has outperformed both its industry peers and the broader UK market, which saw average returns of 1.2% and 6.6%, respectively, over the same period.
IHG just released its results for the first half of 2024, and they look pretty impressive. Operating profit jumped 12% to $535m, riding on the back of a 7% revenue increase. The company’s global RevPAR (that’s Revenue Per Available Room for us non-hotel moguls) ticked up by 3%, with strong performances in the Americas and EMEAA regions.
CEO Elie Maalouf seems pretty chuffed about it all, saying: “RevPAR growth accelerated in the latest quarter, reflecting a strong US rebound in Q2 and the breadth of our global footprint.” He also mentioned that development activity is on the up, with a record number of hotel signings in the first half of the year.
A bargain in disguise?
Now, before we all rush to bet the farm on IHG, let’s take a breath and consider a few things. The company is currently trading at about 23% below what a discounted cash flow (DCF) calculation estimates to be its fair value. That could mean it’s a bargain, but it could mean the market knows something we don’t. From my perspective, it’s worth noting that the firm has a pretty high level of debt and negative shareholders’ equity, which are potential red flags for the risk-averse among us.
But hey, no risk, no reward, right? The firm’s earnings are forecast to grow by 6.66% annually, and they’ve already shown a whopping 100% growth over the past year.
One thing that stands out is management’s focus on driving fee-based income. This strategy seems to be paying off, with the fee margin expanding to 60.6%. This, combined with effective cost management, led to a 12% increase in adjusted EPS. It’s a smart move that could help insulate the company from some of the volatility we’ve come to expect in the hotel industry.
Management also seems committed to rewarding its shareholders. The group returned over $400m to shareholders through dividends and share buybacks in the first half of 2024.
One to watch
For investors interested in companies with solid track records and growth potential, then this one might just deserve a closer look. The latest earnings report proved that the company can come out the other side of the pandemic in great shape.
Sure, it won’t be for everyone. After all, even the comfiest hotel bed can sometimes feel a little lumpy. But with its strong performance and ambitious growth plans, I imagine that IHG could potentially offer long-term investors a five-star experience. I’m not ready to buy yet but I’ll be adding it to my watchlist for now.
