We See Narrow-Moat InterContinental’s Demand Traveling Higher in 2023; Shares Fairly Valued

We don’t plan to materially change InterContinental’s IHG $71 fair value estimate, as the company posted 2022 revenue and EBITDA growth of 34% and 42%, respectively, near our 33% and 44% estimates. We see shares as appropriately valued. For the full year, revenue per available room, or revPAR, was 97% of 2019′s level versus our 101% estimate, driven by average daily rate of 108% of prepandemic marks. As with peers, 2022 revPAR was strongest in the Americas and Europe/Middle East/Asia/Africa, which posted 103% and 108% of 2019′s level, respectively, well ahead of Greater China’s 62%, as travel restrictions hindered demand in that region. On a consolidated basis, fourth-quarter revPAR reached 104% of 2019′s level, improving throughout the quarter, with October at 102%, November 103%, and December 107%. The firm noted that demand has remained resilient into 2023, and we expect its revPAR to lift again in 2023, aided by the human-ingrained desire to travel, improving group and business demand, shift to service consumption, remote work flexibility, and the removal of China’s COVID-19 policy on Jan. 8, 2023.

InterContinental’s brand intangible asset (source of its narrow moat) is largely developing in line with our expectations, with 2022 unit growth of 4.3%, or 2.2% when including the removal of Russia (headwind of 0.7%) and excluding the December Iberostar brand partnership (tailwind of 1.4%), just above our 1.5% forecast. Further, the pipeline of 281,000 rooms in 2022 was up 3.9% from last year, representing 31% of its existing base, which we think will allow average unit growth of around 4% in 2023-25. This growth would outpace the 2% unit growth averaged in 2012-22 for the global hotel industry, showcasing the brand is resonating with hotel owners. Also, the brand is reverberating with travelers, with loyalty membership growing 12 million in 2022 to 115 million, trailing only narrow-moat peers Marriott and Hilton, and accounting for about 50% of total room nights.