InterContinental share price drops as lack of share buyback disappoints

on Feb 18, 2014
Updated: Jun 1, 2022
Listen, Tuesday, February 18: Shares in InterContinental Hotels Group (LON:IHG) have dropped more than three percent this morning despite the world’s biggest hotel operator reporting better-than-expected full-year revenue and earnings. The omission of an announcement for another cash return to shareholders disappointed investors who were hoping that a $300 million share buyback programme would be declared.

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The company also announced the sale of another hotel as part of its strategy to reduce the capital intensity of the business. The InterContinental San Francisco Mark Hopkins has been sold for $120 million, the third property disposal in the last 12 months.
As of 8:26 UTC, InterContinental’s share price was down 3.3 percent at 1,980p, compared to a 0.1 percent decline in the blue chip FTSE 100 index.

**Full-year results**
IHG reported 9.7 percent year-on-year growth in 2013 pre-tax profit to $600 million, beating analyst estimates, which ranged from $575 million to $585 million. (InterContinental share price: Analyst expect solid earnings, cash return in tomorrow’s report) The company’s revenue rose 3.7 percent to $1.9 billion, slightly ahead of Deutsche Bank’s forecast for $1.86 billion. The operating profit before exceptional items increased 10.4 percent to $668 million. The total dividend was lifted by 9.0 percent to 70 US cents per share in line with expectations.

“We delivered good underlying growth in revenues and profits, further reduced the capital intensity of the business and continued to generate high returns,” CEO Richard Solomons said in a statement.
Group fee margin increased 1.3 percentage points to 43.2 percent, as scale benefits and cost efficiencies more than offset increased investment for future growth.

In terms of revenue per available room (RevPAR), the all-important indicator in the hotel management industry, IHG reported global comparable growth of 3.8 percent, with the average daily room rate rising 1.8 percent and occupancy up 1.3 percentage points. Its largest region, the Americas, delivered 4.3 percent RevPAR growth, which along with a 6.1 percent rise in the AMEA region helped offset weakness in Europe and Greater China, which reported growth of 1.7 percent and 1.0 percent, respectively.

In the fourth quarter alone, global comparable RevPAR growth was 4.4 percent, with a slower 4.0 percent rise in the Americas due to weaker trading conditions during the US government shutdown in October, but an encouraging 4.9 percent increase in Europe, a 2.4 percent rise in Greater China and a 6.4 percent increase in AMEA.

Looking ahead, Solomons said: “although economic conditions in some markets remain uncertain, forward bookings data is encouraging and we are confident that we will deliver another year of growth”.
The group opened 237 hotels last year and signed a further 444 hotels into its pipeline, the highest number for five years. In 2014 it expects capital expenditure to remain at the top end of the previously stated $250-350 million range due to increased investment in brands and technology platforms.
Sale of San Francisco hotel
IHG revealed today that it has agreed to sell its InterContinental San Francisco Mark Hopkins hotel for gross cash proceeds of $120 million versus a net book value of $90 million at December 31. The 383 room hotel has been sold to a joint venture between affiliates of Woodridge Capital Partners and funds managed by Oaktree Capital Management, which have agreed to invest some $20 million to refurbish and reposition the hotel. IHG has secured a long-term management contract on the hotel, which generated revenues of $42 million and EBIT of $6.0 million last year.
The sale of the San Francisco hotel is the third agreed over the last 12 months, following the disposal of InterContinental London Park Lane completed in May and the $240 million sale of an 80 percent stake in InterContinental New York Barclay, which was announced in December and is expected to complete next month. The gross proceeds from the three sales amounts to almost $830 million.
Analysts expect IHG to continue its ‘asset light strategy’ with the sale of its most attractive hotels in Paris and Hong Kong and to return most of the proceeds to shareholders in the form of a special dividend or a share buyback programme. The Intercontinental Paris Le Grand is valued at between $400 million and $550 million, while the InterContinental Hong Kong is valued at between $600 million and $900 million, according to different analyst estimates.
**As of 8:12 UTC buy InterContinental shares at 1,997.00p.**
**As of 8:12 UTC sell InterContinental shares at 1,994.00p.**
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