Analysts are upbeat on InterContinental Hotels Group (IHG), the largest hotel chain in the world by number of rooms, as the company this week reported sharp profit growth.
The chain, listed in London and New York, said operating profit increased by nearly 26 per cent last year to US$559 million from $444m the previous year.
Numis Securities has put a "buy" rating on the stock in light of the results. "We believe that this potential for cash returns plus good trading from core markets will sustain the strong trend in IHG's share price," analysts at Numis said in a note to clients.
"IHG makes clear that investing for growth while maintaining a strong balance sheet and financial flexibility are key priorities, but we believe that the growth plans can be funded out of cash flow and that IHG's under-leveraged balance sheet leaves significant headroom for a return of cash to shareholders. Euro-zone uncertainty could affect demand growth, but IHG says there are no signs of it as yet."
The hotel chain is expected to sell the InterContinental Barclay New York hotel, which could generate $350m to $400m, Numis analysts said. "We calculate that, including the disposal of the Barclay, IHG could return $1 billion to shareholders by way of a special dividend or buy-back."
Barclays Capital, meanwhile, is optimistic on the group over the long term.
"We see limited near-term catalysts but continue to like the business model and long-term potential of the group," said a Barclays Capital note.
Barclays expects a sale of the New York hotel in the next six months but said investors did not necessarily have a reason to get too excited about this.
"Management made it clear that investment behind brands and technology will be a strong focus, and while it did not exclude the possibility of further cash returns to shareholders upon asset sales, such as the Barclay, we do not view this as a given."