Intercontinental Hotels shares rally after Jefferies raises to 'hold' on M&A expectations
Shares in Holiday Inn owner Intercontinental Hotels Group (IHG) shot up 1.8% to 2,717p after US broker Jefferies raised its rating on the stock to ‘hold’ as it sees the company as a potential takeover candidate.
FTSE 100
8,139.83
17:09 26/04/24
FTSE 350
4,470.09
16:59 26/04/24
FTSE All-Share
4,423.59
17:14 26/04/24
InterContinental Hotels Group
8,034.00p
16:40 26/04/24
Starwood Hotels & Resorts Worldwide Inc.
$0.00
01:15 04/05/17
Travel & Leisure
7,572.38
16:59 26/04/24
The broker thinks mergers and acquisitions are set to return in the hotel industry as growth slows. “IHG looks to be particularly vulnerable,” said the broker who raised its target price on the stock to 2,400p from 2,000p.
Jefferies said IHG is almost a pure managed and franchised business with a strong pipeline of new rooms and its brand and geographic mix could be attractive to US rival Starwood Hotels.
That’s because IHG is most exposed to the ‘Upper Midscale’ hotel segment, with three and four stars accounting for around 68% of its rooms.
“This could be attractive to Starwood, where IHG would fill a strategic gap (Starwood has only about 13% of its rooms in this segment) and boost its relatively low new room growth rate,” said Jefferies.
The broker added that the capital light and cash generative nature of IHG’s managed and franchised could also be attractive to private equity.
“For these reasons, we believe it could be dangerous to be short the shares and so upgrade [our] recommendation,” Jefferies added.