UBS downgrades IHG to 'sell' on rising headwinds
Analysts at UBS downgraded their recommendation for shares of InterContinental Hotels from 'neutral' to 'sell' on Tuesday, stating the group's current valuation appeared to be "at odds with rising headwinds".
FTSE 100
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16:34 24/04/24
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InterContinental Hotels Group
8,120.00p
16:35 24/04/24
Travel & Leisure
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While UBS acknowledged that IHG was "one of the best of breed hoteliers" and felt "no surprise" that it was so highly rated by the market given the quality of its brands, pipeline, strong execution and management team, its analysts nevertheless highlighted the "unattractive risk/reward" on offer in the stock given the recent expansion in the group's valuation multiples.
The Swiss broker pointed to slowing revenue per available room trends and a pipeline which looked set to create further RevPAR headwinds as its reasoning to cut growth estimates for IHG by 3% per year, which was above the 2% priced in by the market and noted that IHG's 15x multiple was "above historical averages" despite earnings momentum having moved sideways to slightly down.
UBS did note that IHG was "geographically well placed" with a strong US and growing Chinese presence; however, while it praised its pedigree, UBS was cautious that slowing US data and sluggish Chinese RevPAR was "not compatible" with the group's currently "stretched valuation".
"We believe the market is pricing in 3% RevPAR growth pa through 2023 vs UBSe 1.4-2.0%. We think the current EV/EBITDA multiple (c15x 2019e) does not reflect the potential risk of a slowdown in the US RevPAR or Chinese cycle. Furthermore, based on the current share price the shares are attributing c50% of the current valuation to long-term growth, vs 10-50% historically," said UBS analysts.
In addition to dropping their recommendation for the firm's shares to 'sell', UBS also dropped its target price on IHG from 4,700p to 4,500p.