The pandemic brought havoc to many industries, not least the travel and hospitality sectors. Share prices plummeted as revenue dried up and companies scrambled to get enough cash together to hold out until the worst was over. Now I’m interested to see if this FTSE 100 stock is on a sure path to recovery.
Profitable once again and dividend reinstated
InterContinental Hotels Group (LSE:IHG) was battered during the pandemic. The global hotel operator was forced to shut virtually all of its hotels as restrictions were introduced to control the spread of the virus.
Unsurprisingly, these measures created a dire financial situation for the business. For 2020, the company reported a $280m pre-tax loss. This came following a $545m pre-tax profit in 2019.
With the reopening of international borders, however, accommodation is once again in high demand. There are even signs that a recovery is already in progress in this sector.
Indeed, the firm cruised to a $361m pre-tax profit for 2021. This improvement enabled it to reinstate its dividend and it paid out ¢85.9 per share. As a potential investor, this income stream is attractive — but I’m also aware that dividend policies may be subject to change.
These results prompted investment giant Deutsche Bank to rethink its price target for the stock, ultimately increasing it from 5,610p to 5,700p. At the time of writing, the shares are trading at 4,562p.
Strong results and more rooms filled
The business has also made it through the last couple of years in a strong financial position. At the end of March, it had a cash balance of $1.45bn. In addition, debt stood at a controlled level of $3.33bn.
Furthermore, the firm has operating cash flow of $636m. This can be used to pay down debt or to expand its operations.
The share price movement also appears to reflect these solid underlying results. In the past year, the shares have fallen only 2.29% in the midst of wider market sell-offs. For the last three months, they’re down 8.34%.
Compared to pre-pandemic levels, the share price has declined just 13.4%. This strong performance gives me hope that the shares can travel higher in the coming months.
The company’s results for the first three months of 2022 were also solid, with revenue per available room up 61% compared with the same period in 2021.
While business is improving at a swift pace in the Americas, Europe and the Middle East, it appears that the Chinese operation is taking longer to recover. This is partially due to the continued use of lockdowns in that country. There is, of course, the risk that further pandemic variants impact operations globally again, although I think this is unlikely.
Overall, this firm is showing definite signs of recovery following a difficult time during the pandemic. International travel is increasing again, and this can only be good news for InterContinental Hotels Group. I will be adding the company to my portfolio soon.
