EUR 850.00 For Business Accounts Only

Morningstar | InterContinental's Brand Advantage Supported by Its Development Growth, Despite Slow Americas RevPAR

We don't expect a material change to our $59 fair value estimate after InterContinental Hotels Group reported a mixed third-quarter sales update with weak 1% revPAR growth and strong 5.1% room expansion, leaving shares slightly undervalued.

We have some concern with InterContinental's 0% revPAR growth in the Americas segment (73% of total rooms), even though it lapped tough year-ago comparisons related to hurricane benefit and despite the company remaining constructive on industry fundamentals claiming its revPAR share in the Americas region was in line with peers. We expected stronger InterContinental results in this region given Marriott's North America revPAR guidance for its upcoming quarter sits at 1.5%-2% growth. With comparisons remaining tough over the rest of the year, we plan to lower our 2018 Americas revPAR growth estimate toward 2% from 3% prior (in line with the region's year-to-date revPAR, which is up 2%). Elsewhere, revPAR growth was solid and tracking toward our 2018 forecast. Europe was up 4.3% with France 9.8% higher (narrow-moat Accor saw 8.3% revPAR growth in France), while China lifted 4.5%, a bit below Accor's 6% reported increase.

Development metrics are much more encouraging with unit and pipeline growth of 5% (4.6% organic) and 14%, respectively, supporting the company's brand advantage (the source of it narrow moat) and our forecast for roughly 4% annual room lift on average the next several years, well above the 2% average industry supply growth rate. Year-to-date signings are up 45%, supporting a 267,000 room pipeline that represents three times its existing unit share. Greater China (14% of total rooms) unit growth is especially robust, up 13% thus far in 2018 (tracking above our 11% 2018 forecast), as the company's HUALUXE and Holiday Inn brands resonate with travelers. As a result, we plan to lift our 3.7% 2018 room growth forecast to slightly above 4%, despite higher near-term termination rates the rest of the year.