Improving momentum; wary on valuation
* 10 key themes for 2017 look broadly supportive: We enter 2017 with a glass half-full perspective noting: good macro momentum in Europe, an 86% US revenue per available room (RevPAR) correlation with investment spend, improving end markets, high occupancies, muted supply growth (even in the US vs history), limited risk from rising US inflation, potential consolidation, scope for lower US taxes and a UK backdrop helped by sterling weakness. We maintain our Outperform (OP) on International Hotels Group (IHG), which we view as high quality and low risk but also non-consensus. We upgrade Whitbread to OP given improving macro, self-help and valuation. Our thematic concern on Airbnb remains, and with Accor most exposed we maintain our Underperform (UP) rating and note concerns on valuation for its two divisions
* Whitbread (upgrade to OP, TP 4550p from 4030p): We upgrade Whitbread to Outperform reflecting three key observations – 1) we see a return to positive hotel trading momentum and raise Feb-18E RevPAR to 3%; 2) the company's £150m cost-saving plan mitigates the risk from National Living Wage increases, and 3) valuation has rarely looked this inexpensive. With 19% potential upside to our new 4550p target price, we upgrade our rating to OP.
* IHG (OP, TP 4330p from 3550p): IHG shares have underperformed US peers by 14% in Q4 and we see scope for potential 2017 surprises from cash returns, lower US taxes, an improving US macro and consolidation. Thus with 17% potential upside we maintain our Outperform rating.
* Accor (UP, TP €34.8 from €30.5): Improved macro momentum drives a 9% 2017E EPS increase and our TP rises 14% to €34.8 per share as inputs are rolled forward. We see 2017 as being driven by valuation for both the disposal of HotelInvest and the ongoing multiple for HotelServices but we are sceptical on both and retain our Underperform rating.