JPMorgan downgrades IHG, keeps Whitbread as top hotels pick

With earnings season now behind us for European Hotels, JPMorgan has refreshed its forecasts for stocks in its coverage, keeping Whitbread as its "conviction 'overweight'", seeing around 40% upside potential to current prices with a price target of 4,600p.

"We continue to see WTB as best positioned – defensive offering (value/domestic), upside risk to estimates, F&B potential review, Germany optionality," the bank said.

"Whilst concerns around weakening demand trends remain on top of investors' minds, as reflected in recent share price weakness at Whitbread and Accor (both down >10% in the last six weeks), also exacerbated by potential demand pressure in the Middle-East, we have been surprised by the outperformance of IHG, and now see the risk-reward as highly unappealing."

JPMorgan said it cut its recommendation for IHG with its bull and bear case forecasts now suggesting 20% downside but just 7% upside to the current share price, respectively, as it cut its target price from 6,300p to 5,400p.

The bank said this is now the end of the earnings upgrade cycle for IHG, with revenue per available room metrics normalising, the company's share buyback ending shortly, and the valuation gap with US peers reducing significantly.

"Hence, whilst we give credit to IHG's solid track record and defensive asset-light business model, which should continue to warranty a small multiple premium vs peers, we believe that the aforementioned factors will weigh on the shares."

IHG shares were down 1.3% at 5,916p by 0930 GMT, while Whitbread was up 1.2% to 3,344p.