A light dusting proves a hard sell for IHG
Hotel group’s Keith Barr shows little vision but capital-light strategy pays dividends
Tough first day at the office for Keith Barr, new chief executive of InterContinental Hotels. Mr Barr presented half-year numbers for the first time on Tuesday and shares in IHG, franchiser of Crowne Plaza and Holiday Inns, fell 4 per cent, valuing the group at about £8.3bn.
It might have been his persistent references to “guest love scores and premiums,” and “filling white space” and “breakfast solutions”. More probably it was disappointment that Mr Barr is less a new broom than a duster, trained up by his canny predecessor Richard Solomons, who has quit just as the hotel cycle has peaked.
IHG is holding on to its spot as one of the world’s biggest hotel operators with 1m rooms. But occupancy and revenue per room rates were pretty much flat in the six months to June. In IHG’s main market in the US, revenue per chamber fell in the second quarter. And Mr Barr does not have a grand new vision on how to reverse the slowdown.
He says there won’t be a change in direction unless there is a big macro economic shift. It is all about accelerating the old strategy of increasing rooms and, yes, “filling in the white space”, that is plugging gaps in the group’s portfolio. More luxury hotels, online check-ins, better beds, grab-and-go breakfasts, possibly electronic chamber maids and fewer hotel receptionists. But no big acquisitions. IHG is not about to enter the consolidation race to compete with profligate rivals such as Accor of France, which has hoovered up Fairmont, Raffles and Swissôtel, or Marriott, which bought Starwood last year. That deal propelled Marriott into the top slot, overtaking IHG as the world’s biggest hotel group.
Investors will find it hard to bear a grudge for long, though. Mr Solomon’s capital-light strategy of generating cash and keeping capital outlay down has lifted the shares steadily for the past decade. Net debt remains at 2.5 times earnings before nasty bits such as interest. The company raised the dividend by 10 per cent on Tuesday on top of the special dividend of $400m in May. That will continue.
And if that makes IHG, which trades at about 22 times 2018 earnings, a target for rivals rather than an acquirer, that is all the better.