The InterContinental Hotels (LSE:IHG) share price shot up almost 3% this morning at the time of writing, after the firm released its full-year 2023 results.
Here’s my take on the report and where I think the stock is headed long term.
Company overview
InterContinental Hotels Group (IHG) is one of the world’s top hotel firms, owning a diverse portfolio of brands. These include Six Senses, Kimpton, Crowne Plaza, Holiday Inn, and Atwell Suites.
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It operates through a franchise model, meaning its hotels are owned by third-party investors but managed or franchised under IHG’s brand names.
The organisation has hotels in over 100 countries, with its key markets being the Americas, Europe, Asia, the Middle East, and Africa.
2023 results
The financial results presentation gives a comprehensive snapshot of the firm’s performance compared to last year on page four.
The most notable statistics to me include adjusted earnings per share growing 33%, global revenue per available room (RevPAR) up 16%, and global occupancy up six percentage points.
IHG also reported its statistics related to “driving future system growth”. It mentioned that it has 297,000 rooms in the pipeline, a 6% growth from last year.
Q4 also saw the firm report its third strongest quarterly signings performance on record. It mentioned 28.3,000 rooms signed, 50% higher than the same quarter last year.
Additionally, its luxury and lifestyle segment is on the rise. It’s now 14% of its entire estate and 22% of the pipeline, twice the size of five years earlier.
The company also announced an $800m share buyback for 2024, which adds to its $750m buyback in 2023. However, it’s worth bearing in mind that its buyback last year contributed the bulk of its $421m increase in net debt.
Balance sheet risk
Given that the annual report is stellar on so many fronts, I wanted to take a look at one of the deeper, longer-term risks the company might face. I think this is paramount when considering the shares for my portfolio.
First of all, I mentioned that the share buyback contributed to the $421m increase in its debts last year. But it’s surprising that the firm would even consider buybacks when its balance sheet shows negative equity at the moment.
It has -£1,440m in total equity, and £4,728m in total liabilities as of the last trailing 12 months aggregated data. Also, this has been a common occurrence for the firm, with negative equity every year back until 2015.
While £1,362m of debt was taken on by the company as a result of the pandemic, I think it would be wiser for it to pay this down rigorously than to try to boost shareholder returns at the moment. Long term, I think a stable balance sheet is the foundation of a secure business.
My takeaway
There is a lot for me to love about the company, including a portfolio of some of the best brands in hospitality.
However, given the hardships of the pandemic, I’ll be watching closely to see how the firm manages its general financials.
As I mentioned, the balance sheet at the moment just makes the shares uninvestable to me. I think the share price is likely to experience volatility in the future due to this.
