Are you sure?

InterContinental dips as warns of tough trading

InterContinental Hotels, the world's biggest hotelier, warned trading will stay tough until business travelers return in greater numbers, putting pressure on its shares after 2009 profit fell 34%.

Annual profit from the group, which operates the InterContinental, Crowne Plaza and Holiday Inn brands, beat forecasts and show some improving trends, but the cautious outlook saw the shares dip.

The hotelier, which typically manages or franchises hotels instead of owning them, and earns 70% of its profit in the United States, said on Tuesday occupancy level at its hotels has now stabilized but room rates were still under pressure.

“We think that IHG's share price has traveled too far, too fast. We forecast no US recovery until 2011 and prefer cheaper alternatives elsewhere,” said analyst Nigel Parson at brokers Evolution Securities.

The group posted 2009 operating profits of $363 million, ahead of a Thomson Reuters I/B/E/S consensus of $354 million and a company-conducted consensus of $358 million. It paid an unchanged full year dividend of 41.4 cents.

The hotelier saw some helpful trends in its fourth quarter, while its traditionally quiet January showed improvements led by Asia Pacific and the later timing of the Chinese New Year.

“The fourth quarter did show some improvement in trends and occupancy has now stabilized. Rates, however, remain under pressure and we expect trading to stay tough until business travelers return in greater numbers,” said Chief Executive Andrew Cosslett.

InterContinental, which runs over 646,000 rooms in 4,438 hotels worldwide, said revenue per available room (RevPAR), a key industry measure, fell by 14.7% in 2009, with a fourth quarter fall of 10.9%.

Its January 2010 RevPAR decline narrowed to just 3.8%, with Asia Pacific ahead 11.1%, and Chief Financial Officer Richard Solomons said he saw this regional performance leading the recovery at the group.

Shares in InterContinental have been rising since hitting a low of 434p in March 2009 on recovery hopes, with its shares trading on nearly 20.1 times 2010 forecast earnings, but still at a discount to Marriott International on 29.3 times.

Although InterContinental does not give RevPAR forecasts, US rivals expect bookings to improve, with Sheraton owner Starwood Hotels & Resorts looking for flat to a 5% RevPAR growth in 2010 and Marriott seeing RevPAR up 2% to down 2%.

Evolution's Parson added he preferred cheaper stocks than InterContinental, such as Whitbread, Carnival, while although Millennium & Copthorne is more expensive it offers better Asian exposure and higher recovery potential.

InterContinental opened a net 26,828 new rooms in 2009 showing a slowdown from the prior year due to the scarcity of financing for new hotel development, but had a pipeline of new rooms of 210,363, representing 1,438 hotels.

The group, which also runs Staybridge Suites and Hotel Indigo, said it was on track with its $1 billion relaunch of its Holiday Inn brand, with half its hotels operating under its new standards and seeing better 5% RevPAR performance.

The hotelier cut costs deeper in 2009 than it previously planned, trimming $95 million off its 2008 cost base compared to the $80 million it had previously targeted. (Reuters)