Although we don’t believe in timing the market or panicking over every stock fluctuation, understanding how a business is performing, competing and changing is vital to sensible investment.
What: The share price of InterContinental Hotels Group (LSE: IHG) (NYSE: IHG.US) was up over 10% in early trading today, following publication of an interim management statement for the first quarter in which the company reported its strongest revenue per available room (RevPAR) performance in seven quarters, and its best first quarter for “pipeline signings” (ie, hotel deals signed but yet to enter InterContinental’s system) for six years.
In addition, InterContinental said that it had completed two major asset sales in March — the disposal of the InterContinental Mark Hopkins in San Francisco and the sale of an 80% interest in theInterContinental New York Barclay — and announced a $750m special dividend as a result.
So what: InterContinental is still pursuing its strategy of reducing the capital intensity of its business and is committed to returning surplus funds to shareholders. Since 2003 it has returned a total of $10.3bn, of which $1.6bn were ordinary dividends. With a business model that it describes as “highly cash generative” shareholders can probably expect further returns of capital.
InterContinental’s current $500m share buyback programme, which started in November 2012, is now almost complete, with 17m shares having been repurchased for a total of $489m. In the year to date, 3.1m shares have been repurchased for $99m.
Now what: InterContinental has said that there’s a currently a strong global demand for prime hotel assets, and that it was now reviewing opportunities for further asset disposals. Under its capital allocation strategy, such disposals would probably lead to further return of value to shareholders by way of special dividends. There’s also potential for a new share buyback programme, once the current $500m one is completed, which would underpin the company’s share price.
Commenting on the statement, chief executive Richard Solomons said
“Current trading trends give us confidence for the rest of the year and our strategy for high quality growth positions us well for continuing outperformance in an industry with compelling long term growth prospects.”
At 2,213p, the share price of InterContinental is up 15.9% on this time last year, compared with a rise of just 5.5% in the FTSE 100. And over five years the picture is even rosier, with InterContinental’s gain of 232% trouncing the index’s 61% over the same period.
Jon doesn't own shares in InterContinental Hotels Group.