BROKER FORECASTS

Broker views: InterContinental results receive mixed reaction in the City

22nd February 2017, 15:54

Final results from InterContinental Hotels Group [LON:IHG] prompted a spate of notes from research analysts in the City, giving rise to a number of recommendation and/or price target changes.

Barclays Capital cut its rating on the stock to equal-weight (from overweight) saying that it sees limited upside at current levels and, on its base case assumptions, it considers the shares to be up with events.

"Furthermore we see limited catalysts in the short-term to drive the shares much higher with the 2017 cash return announced and 2016 EPS beat now realised," analysts added.

Barclays left its target unchanged at £40 per share.

Deutsche Bank lifted its target from £31 to £35 and maintained its hold recommendation, stating that it believes IHG benefits from an attractive business model but these strengths are priced in.

The broker concluded that it sees better opportunities in the European cycle.

Citigroup, which rates the stock as neutral, said:

"We think the recent re-rating reflects investors' growing belief in a US growth rebound and possible tax cuts.

"Clear evidence of delivery on both could drive a further re-rating up to prior peak multiples of c15x, but we are conscious that much of the upside potential is now being baked into valuations and the scope for disappointment is building."

Kepler Cheuvreux described the results as "solid" but questioned whether this is already priced in.

The broker made minor changes to its EPS estimates and raised its target price from 3,023p to 3,500p but reiterated its reduce rating, which it said was due to the stock's high valuation.

Goldman Sachs said the company delivered an overall strong set of results.

However, Goldman left its neutral recommendation unchanged with a target price of 3,815 pence but acknowledged that the company's strong dividend growth demonstrates management's confidence in future growth prospect and the strength of its business model.

Retaining its buy rating, Beaufort Securities commented: "Having surpassed consensus in 2016, with similar growth expected for the current year, along with its commitment to shareholder returns, Beaufort sees no reason to change its recommendation."

Bryan Garnier confirmed its sell recommendation on the stock after raising its fair value to 3,520p (from 2,950p).

Nevertheless, the broker conceded: "Despite a backdrop of considerable economic and political uncertainty, IHG's asset-light business model has again confirmed its resilience with underlying 2016 revenue up 4.6% and operating profit up 9.5% thanks to strict cost control."

Morgan Stanley reckons the risk-reward is finely balanced and the company's weak RevPAR and unit growth need to improve to support its elevated valuation.

The broker repeated its equal-weight call, albeit upping its price target to £38 from £36.




At 3:54pm: [LON:IHG] InterContinental Hotels Group PLC share price was -109.5p at 3769.5p
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