Travel broadens the portfolio

Just before Christmas – remember that? No. – Peel Hunt upgraded InterContinental Hotels Group from to ‘buy’ from ’hold’ and lifted the price target to 5,750p from 4,600p. A lovely festive gift to ageless CEO Keith too-young-to-be-served-at-the-Barr.

The company’s share price responded according and at the last look was up 11%. The Milky Bar(r)s are on Keith. What a Bar(r)gain.

Comedy names aside, for now, the reasoning behind this move was above-average interesting for so close to Christmas, in that Peel Hunt felt that IHG’s share price was being held back by being associated with the UK hotel market. You might feel that’s a bit rude if you were in the UK hotel market, although you might also have a shrug and think that was fair enough.

The exact phrasing was: “We believe that IHG’s share price has been left behind in an undervalued UK market and domestically-focused subsector”. 

The main point of interest for those looking to interest in the home of Holiday Inn was its business in the US, the bank concluded, adding: “we highlight that, at its core, IHG is a global franchise business which we believe is under appreciated in the UK market where it has no peers and where it is associated with the cyclical and capital-intensive hotel business.

“In contrast, its commercial core is in mid-market hotels in the US heartland where trading has already recovered above FY19 levels and system growth is set to accelerate after a period of weeding out underperforming hotels.”

What started out as a heartwarming tale for young Keith is now a joyous paean for the global branded hotel sector to enjoy. There had been doubts cast by a number of observers – some of them exactly here – as to whether the sector was capable of global branding, but it seems like it just might be. 

BVA BDRC’s Hotel Guest Survey has illustrated that brands tend to do well in their home markets  – no more so than those such as Premier Inn – and taking a brand overseas can be a complex task. Look at Le Meridien in the US. You can’t, of course. Can it be that the era of global branding is now upon us?

Holiday Inn itself will be testing the theory after it signed franchise agreements to rebrand three properties across Tanzania and Kenya in November. The move sees IHG Hotels & Resorts swiftly expand its presence across Africa as the continent’s profile continues to grow.

But before we run into the sunset waving our franchise flags high and applauding a new era, those of us with a few Berlins sloshing around our livers will note that, while Holiday Inn has been owned in the UK since the late 1980s, it’s a US brand. One of THE US brands. IHG did a great deal to revitalise it and many of us were there when the huge new brand bibles were released – and renovation costs announced. Holiday Inn wouldn’t be where it is today without foreign ownership, but maybe don’t tell the Americans (or think about Accor selling off Red Roof Inn).

Still, all this has to mean something and the good news for the hotel sector and those of us who like fun brand M&A is that if a bank is prepared to upgrade you based on your savvy overseas brand purchases, then the big brands were right all along. And you don’t usually get to kick a new year off thinking that. 

Time at the Barr? Not just yet. 

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