LONDON — It’s time to go shopping for shares again, but where to start? There are loads of great stocks to choose from, and I’ve got my wallet out. So here’s the question I’m asking right now. Should I buy InterContinental Hotels Group PLC (ADR) (LSE:IHG) (NYSE:IHG)?
One of my broker contacts has been getting very excited about InterContinental Hotels Group. He thought it was a great way to play the U.S. recovery, claiming the current low supply of hotels gives plenty of scope for growth in total revenues per available room (RevPAR), the key measure of industry success. As the global economy recovers, the business travel market should rebound, helping to fill up those rooms. Is he right? And if so, should I buy this share?
InterContinental boasts more than 4,500 hotels in nearly 100 countries ,with a total of 672,000 rooms. Every year, 153 million people spend a night in one of its nine brands, which include Holiday Inn, Crowne Plaza, and, naturally, InterContinental. Yet the group physically owns a mere handful of those hotels, having sold the rest and signed long-term management or leasing contracts with the owners. Instead, it sells its expertise in-house management, systems, and marketing to these hotels. Its “asset light” strategy means there is a lot less capital-intensive baggage for investors to carry, and a lot more cash to count.
RevPAR for the course
Not that investors have been worrying lately. The share price is up 24% over the past three months to 18.96 pounds, helped by a reassuring Q3 2012 update, which showed strong RevPAR growth across all its key markets, and in the U.S. and China in particular. InterContinental has opened nine hotels with a total of 2,704 rooms in Greater China in Q3 alone. Group revenue rose between 1% and 3%, adjusted for currency movements, while operating profit rose 9% to $167 million. Group net debt fell to $472 million, from $644 million in 2011. The group’s global diversification has been a big help, sparing it restless nights in Europe. In fact, InterContinental is one of those businesses that have benefited from the recession, as a shortage of business finance has made it tricky for smaller rivals to borrow the funds they need to compete.