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The high-flying FTSE 100 has come off the boil up to now couple of weeks as the chance of a worldwide commerce conflict rises. One Footsie inventory that has fallen greater than most is InterContinental Motels Group (LSE: IHG). Now at 8,600p, it’s down 21% in simply over a month.
Taking a longer-term view nevertheless, IHG inventory has been an enormous winner. It’s nonetheless up 160% over the previous 5 years, not together with dividends. In my eyes although, the agency stays a sexy funding proposition, making this a possible dip-buying alternative for my portfolio.
Capital-light mannequin
IHG operates greater than 6,600 motels worldwide throughout 20 manufacturers, overlaying the posh, premium, and midscale segments. These embody InterContinental, Regent, Kimpton, Crowne Plaza, and Vacation Inn.
The agency primarily follows an asset-light franchise and administration mannequin, which means it doesn’t personal most of its places however earns cash by way of charges paid by resort house owners. That is enabling it to broaden quicker around the globe.
Not like US rivals Marriott and Hilton, which have a stronger emphasis on luxurious, IHG has established a powerful presence within the midscale phase. This technique permits it to cater to a variety of travellers.
Strong progress
In mid-February, the corporate launched its 2024 outcomes. It reported $2.3bn in income from its core franchise and administration enterprise, up 7% 12 months on 12 months. Core working revenue jumped 10% to $1.12bn.
IHG added 371 new motels (59,100 rooms) in 2024, a 23% improve, with a worldwide pipeline of two,210 motels (325,000 rooms).
Income per obtainable room (RevPAR) elevated 3% globally, pushed by 6.6% progress in EMEAA (Europe, Center East, Africa and Asia) and a couple of.5% within the Americas. Nevertheless, Larger China fell 4.8% and stays a weak market. Larger RevPAR means motels are charging extra per night time and/or filling extra rooms. The three% determine was greater than what analysts have been anticipating (2.6%).
In the meantime, the agency hiked the dividend by 10% and introduced a brand new $900m share buyback programme. The forward-looking dividend yield right here although is a modest 1.7%.
Why’s the inventory down?
Now for the not-so-good bits. Internet debt elevated to $2.78bn, largely attributable to shareholder returns. And there have been greater curiosity funds, with adjusted curiosity expense rising from $131m to $165m.
In 2025, IHG says its adjusted curiosity expense shall be between $190m and $205m, surpassing analysts’ estimates of $174m. This situation led some analysts to downgrade the inventory, particularly because it was buying and selling at a premium valuation above 10,000p.
One other concern right here is the rising risk of a recession within the US, IHG’s largest market. This might thwart progress and affect earnings.
Silly perspective
Seeking to the long run although, I believe there’s quite a bit to love right here. Lots of the firm’s manufacturers are very established and it has a sexy enterprise mannequin that produces excessive margins and recurring income.
In the meantime, main world resort manufacturers are anticipated to proceed a long-term development of taking market share. The valuation additionally appears cheap. Proper now, the inventory is buying and selling at round 22 occasions this 12 months’s forecast earnings.
Lastly, IHG plans to broaden in quite a few high-growth markets over the approaching years, together with India and the Center East. I believe the inventory will get better and do effectively long run, which is why I’m contemplating shopping for it.
