InterContinental Hotels Group PLC

InterContinental Hotels Group PLC (IHG) is a Denham, United Kingdom-based company. It is into hotel operations. The company has its operations worldwide. Currently, the company has 5,795 hotels and 864,699 rooms under its brand name. The company owns, franchise, manage and lease hotel.

Third Quarter of 2019 Trading Update (as on 18^th October 2019)
On year on year basis, the net system size increased by 4.7 per cent to 865 thousand rooms and was impacted by the later phasing of openings as compared to the third quarter of 2018, when 19 thousand rooms opened. In the current quarter, the group has opened 13 thousand rooms, with the 400th Candlewood Suites property, and the finest performance for Holiday Inn Express opportunities across a decade. The company had signed twenty-five thousand rooms in the current quarter. Although the pipeline now stands at 289 thousand rooms. In the third quarter of 2019, the company’s RevPAR reduced by 0.8 per cent and was impacted by the harder trading conditions in China and the United States, and continuing unrest in the Hong Kong SAR. In Q3 YTD, the RevPAR was almost the same. In the current quarter, the bolstering of the United States dollar against many key currencies internationally reduced the company’s RevPAR to a 1.9 per cent decrease, when reported at an actual exchange rate.

Share Price Performance

Daily Chart as at October-21-19, before the market closed (Source: Thomson Reuters)

On 21st October 2019, InterContinental Hotels Group PLC shares were trading at GBX 4,541 at the time of writing before the market close (at 8:30 AM GMT), up by 0.46% against the previous day closing price. Stock's 52 weeks High and Low are GBX 5,770/GBX 3,861.31. The company’s stock beta stood at 1.46, reflecting the higher movement of the stock as compared to the benchmark index.

Valuation Methodology

*Peers: Whitebread PLC, Compass Group PLC, SSP Group PLC, Tui AG, and Carnival PLC

Conclusion
In the financial year 2019, the company may be impacted by $5 million adverse effects from the fee income loss from current trading conditions in the Hong Kong SAR and $10 million favourable effect from non-recurring items comprising accounting treatment relating to IFRS 16 and significant liquidated damages.

In Q3 FY2019, the company’s Hong Kong market protests have caused regional revenues to drop, while trading conditions are tough in mainland China and in the United States. The company has also witnessed a decline in demand in the Hong Kong market due to a trade dispute between the US-China. China is the rapidly growing market for the hotel industry, but with an increasing dispute between the US and Chinese governments, the growth has been muted. From the perspective of the market, the entire region, including Australia, has been impacted by this economic slowdown.

The company’s EV/EBITDA, EV/Sales, P/E and P/CF multiples are significantly higher as compared to the industry multiple, reflecting overstretched valuations.

Therefore, based on the supported by valuation done using the above method and weak fundamentals coupled with higher risk with the company, we have given an “Avoid” recommendation at the current price of GBX 4,541 (as on October 21, 2019, before the market close).

Gfinity PLC

AIM-listed Gfinity PLC (GFIN) is a leading global esports business group. Backed by gamers of the world’s 2.2 enthusiast gamers and occasion viewers, the company has a distinctive understanding of this fast-expanding worldwide community. The group utilizes its expertise to outline, create and deliver exceptional experiences and to offer consultancy services and winning approach for sports right holders, media companies, game publishers, and commercial partners.

Financial Highlights (for the year ended 30 June 2019, £million)

(Source: Final Results, Company Website)

In the financial year 2019, the company’s reported revenue increased to £7.9 million as compared with the previous year, reflecting both the value of the investments in products, technology, and people in recent years and the strength of the strategic account relationships with a blue-chip customer base, who continue to look to the company for their esports solutions and also represented a year-on-year surge of over 80 per cent for a second consecutive year. Gross profit surged by £4.4 million to £1 million in FY19against the loss of £3.4 million in FY18, due to strategic emphasis on delivery of higher margin esports solutions for main partners. Adjusted operating loss reduced by £3.6 million to £8.6 millionas compared to a loss of £12.2 million in FY18. On 30^th June 2019, the net cash stood at £0.6 million, augmented by completion of £5.25 million capital raise in July 2019.

Share Price Performance

Daily Chart as at October-21-19, before the market closed (Source: Thomson Reuters)

On 21st October 2019, Gfinity PLC shares were trading at GBX 3.6001 at the time of writing before the market close (at 10:50 AM GMT), down by 0.67% against the previous day closing price. Stock's 52 weeks High and Low are GBX 9.50/GBX 3.25. The company’s stock beta stood at 1.88, reflecting the higher movement of the stock as compared to the benchmark index.

Key Risks
Financial risk, interest rate risk, currency risk, credit risk and liquidity risk.

Conclusion
Gfinity has a scalable business model backed by the company’s value creation.The group is aiming to be at break-even within 2021 and estimating a gross margin of 30-40% and EBITDA margin of 15-25% by the end of 2021. The group recorded stellar top-line growth and secured several good contracts, during the FY19.

The company has refocused the business on a Strategic Client Management model that has enabled them to bolster the current strategic partnerships and build a strong pipeline of new commercial prospects. The esports market is increasing quickly and the company is on the epicentre of the ecosystem. The company is focussed on working closely with the partners to deliver distinctive esports solutions and to assist them in connecting with young gamers around the globe. The new CEO, Graham Wallace, has vast experience in several related industries and has all the qualities as required to accelerate and lead the performance of the group. The three-year strategic plan is set, and the company has a robust financial position.

Therefore, based on the above rationale, we have given a "Speculative Buy" recommendation on the stock, at the current price of GBX 3.6001 (as on October 21, 2019, before the market close).
 
 
*All forecasted figures and Peers information has been taken from Thomson Reuters. Currency exchange rate taken for 1 USD = 0.773646 GBP.

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