Peel Hunt upgrades InterContinental Hotels to ‘buy’

"We believe that IHG’s share price has been left behind in an undervalued UK market and domestically-focused subsector," the broker said.

"Given its primary exposure to a US economy in relatively good shape and a mid-market hotel subsector that has proven to be resilient, we believe its valuation will look increasingly compelling as 2023 goes on."

The new target price is based on an FY23E price-to-earnings multiple of 19x, the level the company was trading at in FY19 when it became apparent that it was poised to accelerate its system growth rate, Peel said.

In its note, Peel Hunt focused on IHG’s history of returning cash to shareholders and highlighted that it expects dividend growth of 10% plus an annual share buyback of $500m.

"As a result our EPS forecasts for FY23E and FY24E are 12% and 17% respectively above consensus while our operating assumptions are broadly in line," it said.

"In addition, we highlight that, at its core, IHG is a global franchise business which we believe is underappreciated in the UK market where it has no peers and where it is associated with the cyclical and capital-intensive hotel business.

"In contrast, its commercial core is in mid-market hotels in the US heartland where trading has already recovered above FY19 levels and system growth is set to accelerate after a period of weeding out underperforming hotels."

At 1045 GMT, IHG shares were up 3% at 4,936p.