InterContinental Earnings: Demand Continues to Improve, While Brand Development Remains on Track

Our InterContinental IHG fair value estimate is $73 per share. Narrow-moat InterContinental’s second-quarter sales update points to continued resiliency of travel demand, as leisure travel endures and group, business, and international trips recover. Total revenue per available room, or revPAR, grew 17%, representing 110% of 2019′s level. China revPAR jumped 110% and was nearly back to prepandemic marks versus 91% last quarter. Americas revPAR was 112% of 2019′s level (with the U.S. at 111%), up from 111% last quarter (110%). Specifically, U.S. leisure revenue was 124% of 2019′s level, with business travel remaining slightly above prepandemic marks and group at 86%. Encouragingly, bookings for group have exceeded 2019′s level for the last six months and as of the end of the second quarter booked group revenue was 36% ahead of prepandemic amounts. Further, InterContinental noted it is not seeing any signs of demand deterioration, including no letup in leisure travel room rates. We model for the company’s 2023 revPAR to increase by a high-single-digit percentage. Meanwhile, first-half adjusted EBITDA margin was 23%, flat from a year ago, and tracking a bit ahead of our 22.3% forecast.

InterContinental’s development metrics remain supportive of its narrow-moat brand intangible asset. The company’s unit growth was 4.8%, with its pipeline growing 3% to 286,000 rooms, representing 30% of current system size. Encouragingly, conversions were 36% of signings, indicating the brand is resonating with third-party owners. This is also reflected in InterContinental’s pipeline amounting to over 10% of the global industry room pipeline, above its existing 4% share. Overall, InterContinental maintained its 2023 unit forecast of 4% versus our 4.3% forecast. Beyond this year, we estimate unit growth can continue at 4% for the next few years, aided by a new midscale brand, which already has interest from 100 owners.