Yahoo Finance Questor: keep the booking at InterContinental hotels
Hoteliers have been remarkably relaxed about the impact of Airbnb on their industry.
That’s because the hotel lobby thinks it is making progress in persuading civic leaders to rein in the short-stays website by capping the number of nights that homeowners can let out a room, limiting its use by residential landlords, imposing taxes and health and safety regulations.
Such setbacks have yet to wound Airbnb, which lists 2 million properties and was valued at $30bn (£24bn) in its last funding round. You can buy InterContinental Hotels Group (IHG) three times over for that – and Airbnb doesn’t have to employ a single chambermaid or restock the minibar.
Yet IHG shares are on a roll, having risen by more than a half since the middle of last year. If digital disintermediation is about to strike, the City hasn’t noticed yet.
The reason investors have been checking in is the same reason Goldman Sachs’ stock hit an all-time high last week: the new US president might be furrowing brows in diplomatic circles, but market watchers are anticipating a Trump Bump from tax cuts and a government spending splurge.
It has come at just the right time for IHG, which makes three quarters of its profit in the Americas and whose US growth has been under scrutiny.
Last October, the operator of the Crowne Plaza and Holiday Inn chains reported 1.4pc growth in revenue per available room (revpar – the industry’s favourite metric) for the US in the third quarter, a step down from the 2.6pc in the second quarter.
The slowing trend over several quarters can be attributed to two factors. Progress has been held back by IHG’s concentration of hotels in oil-producing regions where activity has dropped off because of the depressed price of crude.
The other worry is that record levels of demand cannot be sustained and room rates are already significantly higher than their peak in the last economic cycle.
Still, IHG is expected to show some resilience in its annual results on Tuesday. Analysts at HSBC have pencilled in US growth of more than 2pc in the fourth quarter and predict the group could benefit from Trump’s infrastructure plans.
Another way that chief executive Richard Solomons aims to squeeze out more income from each of his rooms is by boosting customer loyalty. One beige bedroom suite might look very similar to another to a tired business traveller, but that is not the view of Solomons, a 25-year veteran who joined when hotels was just one division of the Bass conglomerate. A whizzy new guest reservation system is on the way, intended to make it easier for customers to personalise their booking – and claw back some of the commissions that hotel groups pay to online travel services such as Expedia.
The company is moving into a new phase after completing its sale of assets with the disposal of its Hong Kong flagship hotel two years ago. Switching from owning bricks and mortar to purely managing hotels has been lucrative for shareholders. IHG has handed back $12bn in special dividends alone since 2003.
Those rewards have not prevented questions over whether IHG should cut a deal in a fast-consolidating industry. It was the largest hotel group by room numbers until rival Marriott snapped up US rival Starwood. That transaction came hot on the heels of Accor’s purchase of Fairmont. The French group has also nodded to Airbnb’s progress with the acquisition of short-lets website Onefinestay and Travel Keys, a broker of private luxury villas. At $430m, IHG’s takeover of boutique operator Kimpton in late 2014 looks small beer.
Solomons’ view is that the company is expanding fast without a big, risky deal. IHG runs more than 750,000 rooms in over 5,000 hotels – with another 230,000 rooms in the pipeline – and has created new brands such as China-focused Hualuxe. It has a big future.
As analysts at Goldman Sachs point out, IHG has 5pc of the global hotel supply, but 15pc of the pipeline, illustrating why rivals feel the need to pull out their cheque book. IHG has also been talked of as a target, especially for Chinese insurer Anbang which failed to buy Starwood.
Trading at 21 times this year’s forecast earnings, the shares are not cheap, but worth holding on to.