IHG jumps on cash return, but RevPAR growth slows - UPDATE

Shares in Holiday Inn and Crowne Plaza owner InterContinental Hotels Group (IHG) surged on Tuesday after the group said that it would return one billion dollars to shareholders as the group recorded growth across the board.

The firm said that funds are to be returned to shareholders via a $500m special dividend, to be paid in the fourth quarter of 2012, and a $500m share buy-back programme that will begin at the same time.

Speaking in a BBC interview this morning, Chief Executive Richard Solomons said that "a combination of being where the growth is... and running a pretty efficient business has really helped us perform."

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"Travel is a way of life and we about evenly split between business travel and leisure travel and it's continued to grow," he said.

By 15:57, shares were trading 6.91% up at 1,734p as the market celebrated the cash return; however, analysts preferred to maintain their cautious view on the stock today, seeing as though revenue per available room (RevRAR) growth - a key performance indicator in the hotel industry - has decelerated going into the second half.

First-half RevPAR increased by 6.5%, with Americas growing by 7.1%, Greater China by 9.7%, AMEA (Asia, Middle East & Africa) by 7.9% and Europe by 1.9%. Total gross revenue increased 7.3% to $10.3bn.

However the firm said that in July, RevPAR growth had slowed to 3.8%, with all geographical areas decelerating (Europe RevPAR meanwhile fell by 0.2%) due to tougher comparatives and the timing of US holidays.

"We retain our view that IHG has the most value creating model in the hotel peer group, but with RevPAR momentum slightly slowing believe the valuation already discounts this strength," said analysts at Nomura in a research note.

Nethertheless, Solomons said: "While the global economic environment remains uncertain, IHG continues to trade well and we are confident that our strategy will deliver high quality growth into the future."

IHG said that the disposal of InterContinental New York Barclay continues to progress while the next major asset disposal on the list is the InterContinental London Park Lane.

Nomura said: "We believe the accelerated timing of the capital return and the confirmation of the intention to sell the London InterContinental reflects the presence of an activist shareholder on the register. The strategy is developing as we expected, but management seems to be executing on it more expediently."

Nomura maintained its 'neutral' rating on the shares today, while Panmure Gordon reiterated its 'hold' recommendation. The latter said today that following the capital return, the stock would trade at around 17 times next year's earnings "which feels broadly appropriate given signs the macroeconomic environment is starting to impact on hotel trading."

BC