Deutsche upgrades InterContinental Hotels, says it’s ‘a relative safe haven’

Deutsche Bank upgraded its recommendation on InterContinental Hotels on Thursday to ‘buy’ from ‘hold’ and hiked the price target to 5,600p from 5,175p as it said the stock was “a relative safe haven” in the sector.
The bank downgraded IHG to ‘hold’ last February due to a high valuation and a lack of catalysts. It noted that since then, the shares have fallen 11% versus the Stoxx Euro 600 up 12%.

Explaining the upgrade, DB said IHG is benefiting from a solid operating recovery and is back at more attractive levels of valuation “with exciting growth perspectives”.

“Thanks to its impressive cash-generative business model, its geographical exposure to the fastest-recovering economies (70% of the group results come from the US and 8% from China) and a strong balance sheet, we do not see any justification for not having a clear premium for IHG versus European peers,” Deutsche said.

In the same note, the bank upgraded France’s Accor to ‘buy’ from ‘hold’ and lifted the price target to €36.70 from €35.50.

“Even if the general environment is still not offering huge visibility (the travel sector will likely continue to suffer significant constraints in the short term), we consider that the worst is probably behind us and that, thanks to the vaccines, economies should progressively reopen and allow people to travel again, both for leisure and business,” DB said. “The cost-cutting plan put in place by Accor should also deliver positive effects and boost profitability.”

The bank retained its ‘buy’ stance and 3,800p price target on Premier Inn owner Whitbread, which remains its top pick in the sector.

“In our view, the business should see strong operational performance ahead, driven by strong summer demand for staycations, especially in the UK Regions – our current estimates factor in revenue per available room levels in FY22e (ending Feb) that are circa 22% below those in FY20, and this is in the context of a strong summer demand for hotel accommodation in the UK.”

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