IHG's Avid can shake up US midmarket hotels, Credit Suisse says

Intercontinental Hotels' new US midmarket brand, Avid, is the group's biggest launch for more than 25 years, analysts at Credit Suisse said as they upgraded the company to "outperform".

Based on 2m pieces of customer feedback, the analysts said there was scope for a midmarket chain chain providing greater consistency and value for money to shake up the market.

The midscale segment is underserved and Avid, launched in September, is in a position to carve out a successful niche, they argued. Avid will be positioned just below the "upper midscale" where IHG's Holiday Inn Express sits. Avid is IHG's most significant launch since Holiday Inn Express in the early 90s, they argued.

There has been a lack of supply growth in the midmarket hotels segment in the past decade and its share of revenue has been declining partly because owners and customers have been disappointed by offerings, the analysts said.

"We believe it is immediately clear that IHG views the midscale segment … as ripe for a scale offering that strikes a better balance between quality and value relative to the existing offering," the analysts wrote in a note on Wednesday.

"Although there could be a concern that IHG is entering into a declining market, we believe this is a sign the market has been underserved."

Investors are underestimating IHG's ability to cut unit costs and generate cash, the analysts said, adding that the Avid brand is "a 100% asset-light brand launch". They expect the company to pay $2.6bn (£2bn) in special dividends by 2022.