InterContinental Hotels Group Plc - Near-Term Outlook Remains Uncertain

InterContinental Hotels Group Plc (LON: IHG) is a Denham, United Kingdom-based Company. It is into the hotel business with the operations spread across globally.

On 23 October 2020, the Company will announce the third-quarter trading update to 30 September 2020.

Recent News

On 11 August 2020, the Group announced that Graham Allan would join the IHG Board as an Independent Non-Executive Director, effective from 1 September 2020. The Group also stated that Luke Mayhew, as a Non-Executive Director, will be retiring from the Board of IHG.

Financial Highlights (H1 FY2020)

(Source: Company Website)

On 11 August 2020, the Group provided a half-year results to 30 June 2020, with navigating the Covid-19 crisis effectively and responsibly. During the six months ended 30 June 2020, the total revenue reduced by 45.3% year-on-year to US$1,248 million, while revenue from reportable segments for H1 FY20 decreased by 51.8% year-on-year to US$488 million, driven by the impact of a pandemic on both fee revenue and revenues from owned, leased and managed lease hotels. The fee margin from reportable segments decreased to 26.1% in H1 FY20 from 54.1% in H1 FY19, due to adverse trading conditions, partly offset by cost reduction measures. The Group has taken an effective action to strengthen the liquidity position, with total available liquidity of US$2 billion at 30 June 2020 (similarly maintained at the end of July 2020). Led by the exchange rate movements and the derecognition of lease liabilities from the balance sheet, the Group’s net debt was down by 12% year-on-year to US$2,515 million in H1 FY20.

Share Price Performance

1-Year Chart as of 13 August 2020, after the market close (Source: Refinitiv, Thomson Reuters)

InterContinental Hotels Group Plc’s shares were closed at GBX 4,226.00 on 13 August 2020, up by 1.08% against the last day closing price. Stock 52 week High and Low were GBX 5,358.00 and GBX 2,161.00, respectively.

From the technical standpoint, 14-day RSI is currently moving towards the overbought zone, which means there is a potential for a short-term correction in the stock price.

Key Risks

The Group is exposed to the risk of a fundamental change to the regulatory framework, which can have an adverse impact on the business and economic model. Moreover, the Covid-19 mayhem and macroeconomic uncertainties will keep the market volatile in the short term. Any change or disruption in technology could affect the overall business of the Group.

Conclusion

The Company has taken decisive action to manage through Covid-19 crisis effectively and responsibly. The industry continues to have an attractive structural growth driver and IHG’s cash-generative, resilient fee-based model, gives the Group confidence to emerge stronger when the market recovers. The Group turned from profit to loss in the latest half-year results. Whilst the near-term outlook stays uncertain.

Based on the above rationale, we have given a “Watch” stance on InterContinental Hotels Group at the closing market price of GBX 4,226 (as on 13 August 2020), while we will see some recovery across each region in the near term.

Domino's Pizza Group Plc – Delivered a Resilient H1 Performance

Domino's Pizza Group PLC is the leading pizza brand Company in the United Kingdom, which is also a major player in the Republic of Ireland.

Financial Highlights (H1 FY2020)


(Source: Company Website)

On 11 August 2020, the Company provided first-half results for the 26 weeks ended 28 June 2020, with resilient performance. In H1 FY20, the UK & Ireland system sales increased by 5.5% year-on-year to £628.9 million (H1 FY19: £596.0 million), with UK like-for-like (LfL) accelerated over lockdown. The UK & Ireland underlying EBIT decreased by 5.6% year-on-year to £49.5 million in H1 FY20, mainly driven by COVID-19 related costs of £6.2 million. With discontinued and continued activities, the statutory profit after tax reduced by 15.2% year-on-year to £19.0 million in H1 FY20, primarily due to the loss on disposal of Norway. Led by the loss on the disposal of Norway and losses from the discontinued International operations, the statutory EPS from continuing and discontinued operations decreased to 4.4 pence in H1 FY20 from 5.3 pence in H1 FY19. Free cash flow stood at £46.9 million in H1 FY20 (H1 2019: £20.7 million), and net debt decreased by 15.4% to £202.1 million from £238.8 million, driven by both no dividend payments during the period and the reversal of the working capital outflow experienced at the end of 2019. The Company has already suspended the final dividend in March 2020, and it has also not declared an interim dividend (due to preserving cash). 

Share Price Performance

 
1-Year Chart as of 13 August 2020, after the market close (Source: Refinitiv, Thomson Reuters)

Domino's Pizza Group Plc’s shares were closed at GBX 357.60 on 13 August 2020, up by 4.81% against the last day closing price. Stock 52 week High and Low were GBX 372.80 and GBX 218.90, respectively.

From the technical standpoint, 14-day RSI is currently moving towards the overbought zone, which means there is a potential for a short-term correction in the stock price.

Key Risks

The ongoing coronavirus situation and future economic repercussions may impact the ability to achieve growth, either through future store openings or organic growth. The Company is also facing emerging headwinds and cost pressures.

Valuation Methodology


Conclusion

In the first few weeks of the second half of 2020, the Group had shown a decent trading performance, supported by the return of Premier League football, an increase in UK staycations and the VAT reduction on hot food. However, the macroeconomic, consumer and competitive backdrop for H2 FY20 contain considerable uncertainties. In the UK and Ireland, the capital expenditure for FY20 will be in the range of £20-£25 million. The Group has suspended the final dividend and is not declaring an interim distribution to save cash.  Currently, the stock is trading near the 52-week high, suggesting that the upside potential might be limited, and the Company can face stiff resistance at the current level.
Based on the above rationale, we have given a “Watch” stance on Domino's Pizza Group at the closing market price of GBX 357.60 (as on 13 August 2020), while we believe that the market has started showing interest in the restaurant counter in a staggered way for a long-term view.
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.
*Dividend Yield may vary as per the stock price movement.

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