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RBC upgrades IHG in 'good time' to buy hotels

By Sean Farrell

Date: Wednesday 01 Apr 2020

RBC upgrades IHG in 'good time' to buy hotels

(Sharecast News) - Royal Bank of Canada upgraded InterContinental Hotels (IHG) to 'outperform' and said now looks a good time to buy hotels.
RBC cut its price targets for IHG, Whitbread and Accor to reflect the unprecedented conditions faced by the hotels sector. The industry has never experienced a 90% drop in revenue per available room (revpar) in multiple markets with hotels closed en masse, RBC said.

But analysts Julian Easthope and Christine Zhou said demand was likely to recover as the pandemic fades and that the three companies are well financed to get through the crisis.

"We believe a long-term view will suggest this is a good time to buy hotels as we think hotel demand will remain strong," the analysts wrote in a note to clients.

The analysts said IHG was the most defensive because of its franchise model, making it their preferred pick. The company also has ample liquidity with $1.4bn of cash and facilities. They upgraded IHG to 'outperform' from 'sector perform' and reduced their price target to £40 from £45.

RBC's analysts cut their price target for Premier Inn owner Whitbread to £34 from £38 with an 'underperform' rating. Though the company has £1.4bn of liquidity and is in line to benefit from struggling independents, it is exposed to the UK and higher risk owned/leased hotels, RBC said.

Accor is very well financed with €4bn liquidity but its investment in AccorInvest is an unknown risk, RBC said, cutting its price target to €34 from €40 and sticking with an 'outperform' rating.

Easthope and Zhou estimated it would take about two and a half years for revpar to recover. They also assumed that business travel would recover because companies will still prefer meeting face to face rather than online.

But with businesses under financial and environmental pressure they could decide meeting online was good enough, the analysts conceded.

"We retain our view that travel will rebound but accept this as a risk," the analysts said.

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