EUR 850.00 For Business Accounts Only

Morningstar | InterContinental's Brand Advantage Supported by Recent Brand Investments; Shares Fairly Valued

InterContinental's recent brand investments (renovations and acquisitions), support our stance that its intangible advantage (source of its narrow moat) is strengthening. That said, with 2018 sales and earnings per share of $1.9 billion and $2.92, respectively, near our $1.9 billion and $2.88 forecast, we don't plan a material change to our $62 fair value estimate. We see shares as fairly valued.

2018 organic unit growth of 4.3% matched our forecast, as acquisitions added an incremental 50 basis points of lift. In our view, IHG is performing well across all regions and scales. In the Americas, 2018 unit growth lifted 2.5% versus our 2.4% estimate, driven by core brand Holiday Inn and its improved open area breakfast concept that is lifting guest satisfaction. Strength in this region is also evidenced by the company's calculation that it captured a 26% share of all U.S. signings during 2018. In EMEAA, 2018 unit growth was 6%, above our 3.7% estimate, aided by newer Kimpton, Regent, and voco brands. In Greater China, room lift was 13.6%, versus our 15% forecast, driven by the Holiday Inn concept.

Holiday Inn renovations continue to support our roughly 4% annual unit growth on average the next 10 years in addition to remodels taken place at Crown Plaza as well as the launch and acquisition of five new brands over the past 18 months. InterContinental's mainstream segment has 16% and 25% of existing and pipeline industry share, respectively, supported by its Avid launch in 2017 that now has 173 hotels signed in the pipeline. Meanwhile, the company is growing its upscale segment presence, where it has 5% and 7% of existing and pipeline industry share, respectively, with its existing Hotel Indigo brand and recently launched voco concept. And it’s a similar situation in the luxury segment, where it holds 12% and 10% of existing and pipeline industry share, respectively, supported by the recently acquired Regent and Six Senses brands.

2018 revPAR growth of 2.5% matched our forecast, as Americas, EMEAA, and Greater China lifted 1.9% (versus our 2% estimate), 2.7% (2.7%), and 6.9% (8.2%). We believe InterContinental's revPAR can average around 4% annually over the next 10 years, despite an industry cyclical down year in 2020, as it leverages its 100 million-plus loyalty members (a figure only matched by narrow-moat Marriott) and just launched cloud-based reservation platform (which can allow for revenue optimization and customization).