Shares in the hotel group hit an all-time high last month as rising profits, a strong dividend and merger speculation propelled the stock higher. The first half of the financial year was strong; the headline profit figures declined by 18%, but the company posted a 6% rise in adjusted net profit, and the latter strips out disposals. The US is the company’s largest market and it is performing well along with the UK, but Thailand, Russia and Israel are registering declines.
InterContinental Hotels had its best six months for signings, and the company increased its interim dividend by 9%. The higher cash return to shareholders is a sign of how strong the company is, but it is also aimed at keeping investors happy.
The San Francisco hedge fund Marcato Capital owns a 4% stake in the firm, and it has been pushing for a merger with another hotel chain. Marcato Capital believes that if InterContinental was merged with a high-end hotel group its stock would double in value. In order to fend off the takeover speculation, the UK-headquartered company has sold a number of its well-known hotels – such as La Grande in Paris – to free up capital. Either way, shareholders in the company will benefit from the higher cash returns and continued merger speculation.
InterContinental Hotels will report its full-year numbers on Tuesday 17 February, and the consensus is for revenue of $1.85 billion and adjusted net income of $389 million. The forecasts represent a 2.6% drop in revenue and a 6.9% fall in adjusted net income. The hotel group will also reveal its second-half figures on the same day, with the market expecting revenue of $938 million and adjusted net income of $208 million. The first-half figures were well received by dealers, with revenue coming in at $908 million and adjusted net income at $181 million, against expectations of $885 million and $184 million respectively.
Equity analysts are bullish on the company, and out of the 27 recommendations, seven are buys, 14 are holds, and six are sells. The average target price is £26.02, which is marginally above the current price. Investment banks are also bullish on its rival Whitbread. Out of the 25 ratings, 13 are buys, 11 are holds, and only one is a sell. The average target price is £49.04, which is fractionally below the current price.
The stock is trading just under the 50-day moving average of £26.06, and if the stock manages to retake the level the target will be the record high of £27.75. If the stock fails to retake the 50-DMA it will become resistance and the initial downside target will be £25, which if broken puts the 200-DMA of £24.15 in sight.