Barclays cuts InterContinental Hotels as shares 'up with events'

Barclays cut its rating of Holiday Inn owner, InterContinental Hotels Group to ‘equal weight’ from ‘overweight’ and left its price target unchanged at 4,000p in light of recent US business confidence data.

The bank said that IHG has one of the strongest earnings per share compound annual growth rate in its coverage universe at 14% with the highest return on capital employed at 57%.

IHG´s multiples are sensitive to US revenue per available room, which for now it feels are supportive in light of recent US business confidence data

Barclays said this justifies the current 20.2 times 2017 estimated price earnings ratio and 13.1 times enterprise value of earnings before interest, tax, depreciation and amortisation (EBITDA) multiples.

Barclays considers IHG’s shares to be “up with events” and sees limited catalysts in the short-term to drive the shares much higher with the 2017 cash return announced and 2016 earnings per share beat now realised.

“Our revised upside case of 4,750p (vs 4,596p) offers 22% upside potential, however under a scenario where revenue per available room trends accelerate (lead indicators continue to be supportive), margins can continue to grow by circa 120 basis points per year (management seems comfortable with this), leverage is retained at 2.5 times (management is comfortable in a ‘normal’ environment) and the company benefits from US tax reform.”

Shares in InterContinental Hotels Group were down 1.34% to 0910 GMT.