InterContinental Hotels ups dividend after revpar recedes in second quarter
InterContinental Hotels Group booked investors in for a 10% interim dividend hike to make up for slower growth in revenue per available room (revpar) to 2.1% from the 2.7% at the start of the year.
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The Holiday Inn and Crowne Plaza operator generated underlying revenue of £788m in the first six months of the year, which was up 4% year on year at constant exchange rates, with operating profit rising 7% to $365m and adjusted earnings per share surging 27% to 111.7 cents.
At the reported level, which also includes the effects of asset disposals, managed leases and significant liquidated damages, revenues were up 2%, operating profit 8% and adjusted EPS also up 27% to 113.3 cents and basic EPS up 27% to 111.7 cents.
After generating free cash flow of $204m, down from $241m in the same period last year, the interim dividend was hiked to 33 cents from 30 a year ago, and follows the $2.025 special dividend and slight share consolidation completed in May.
Net debt was up by $0.6bn to $2.1bn.
Global revpar growth slowed to 2.1% due to 1.5% growth in the second quarter including a decline of 0.4% in the US where it was hit by the timing of Easter.
Occupancy increased 0.9 percentage points and IHG increased net room growth 3.7% year on year, with roughly 23,000 room openings, up 31% year on year, which includes 3.5k rooms in Makkah, Saudi Arabia.
New chief executive Keith Barr, who was promoted in July after 17 years at the company, hailed the continued progress in executing predecessor Richard Solomons' strategy to deliver high quality sustainable growth, and during the half passed the landmark of over 1m open or pipeline rooms.
"My focus is on driving an acceleration in our growth rate, by increasing the resources dedicated behind the highest opportunity markets and segments, strengthening our brand portfolio, building on our leading loyalty proposition, and enhancing our competitive advantage through prioritising digital and technological innovation."
Reported central overheads were cut $9m, or $4m on a constant currency basis, thanks to a $4m increase in central revenues and efficiency improvements.
This and currency effects helped group fee margin increase 2.4 points to 51.0%, with full year margin growth currently expected to be in the region of the long-term average of around 135 basis points.
Barr said he will continue the company's focus cost efficiency to generate funds for reinvestment.
"This, combined with our cash-generative business model and disciplined approach to capital allocation, will drive superior returns to shareholders.
"While we will always face macro-economic and geopolitical uncertainties, we remain confident in the outlook for 2017."
IHG shares fell 4% to 4,233p by mid-morning on Tuesday.
Broker Numis, which noted that underlying PBT of $330m was 3% ahead of consensus expectations of $320m, said revpar growth of 2.1% and net system growth of 3.7% were consistent with medium-term guidance but that the deceleration in the US from 1.9% in Q1 to -0.4% in Q2 was "relatively disappointing" compared to an 80 basis-point deceleration in the STR market data.
On new CEO Barr's aim to accelerate growth by increasing the resources dedicated to the highest opportunity markets and segments, analyst Tim Barrett said: "In our view IHG’s strategy is appropriate and already being well executed, but realistically, the hotel cycle will be the biggest determinant of earnings in the short to medium term."
Barrett's forecasts currently assume 2.1% revpar growth and 3.7% system growth, giving EBIT up 6% to $744m on an underlying basis.
Fund manager Steve Clayton, manager of the HL Select UK Growth Shares fund, which holds £10.4m IHG shares, likes the company’s asset-lite business model for its reliability as a cash generator, allowing it to regularly return funds to shareholders, even as its grows its estate globally.
"It’s an appealing mixture; franchised and managed hotels generate a lot of cash, with the hotel owners stumping up the capital for the bricks and mortar. Intercontinental’s new cloud-based booking system should drive further growth as it rolls out over the next year or so, suggesting plenty of growth potential remains.
"A little bit of profit-taking in early trade is not that surprising to see, given the shares were already up around 20%, so far in 2017.”