Shares fall despite news of a first-quarter special dividend.
InterContinental Hotels Group room revenue climbs, but fails to deliver in the Americas
- Shares are down a 7.2% in early morning trading following a mixed third quarter trading update
- While investors may be disappointed in the numbers, they should be pleased of the news of a $500m special dividend due to be paid in early 2019
- We continues to recommend the shares as a ‘hold’ for investors seeking growth and willing to accept a medium level of risk
InterContinental Hotels, a multinational hospitality company whose brands include Crowne Plaza and Holiday Inn, updated the market this morning with its third quarter results.
RevPAR was flat in the third quarter in the Americas, mostly due to the fact that performance in the US was impacted by strong prior year demand from the 2017 hurricanes. Meanwhile it was up 2.5% in the EMEA region, with particular growth in Russia as a direct beneficiary from the FIFA World Cup. Most prominent growth was in China where RevPAR was up 4.8% in Q3 and 8.2% year-to-date; this has been driven chiefly by continued transient and corporate demand. The group is set to expand further in the country with the expectation of further rises in spending by the growing middle class.
The group appears to be on a growth path as 19,000 rooms opened in the quarter, up 70% from the prior year, boasting its best third quarter performance in a decade. Additionally, 27,000 rooms have been signed which makes this the group’s highest third quarter signing since 2008. The group now boasts a strong pipeline of 267,000 rooms.
There was also news that will please investors of a $500m special dividend, which will be paid in early 2019 and in the form of a share consolidation.
What will fail to please so much is the market’s early morning reaction with a 7.2% fall in the share price leaving the shares now down over 15% this month. This is most likely due to the numbers missing analyst expectations, signs of slowing growth and the performance in the Americas (its largest region), where RevPAR was flat over the quarter. RevPAR in the United States was down 0.5% and the country accounts for over 50% of group revenue.
Nonetheless, the CEO remains confident for the remainder of the year and for the group to deliver growth over the medium term, which could be a positive for investors, but the shares do not look especially good value and are no better than a 'hold'.
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