One to Watch

INTERCONTINENTAL is the world's largest hotel company by number of rooms. The company operates more than 4,400 hotels worldwide under various brands, including Intercontinental Hotels, Crowne Plaza and Holiday Inn.

Among its European peers, Intercontinental has the highest exposure to economic recovery in the United States. Intercontinental's hotels in North America account for more than half of its revenues and nearly two-thirds of operating profits.

As demand has continued to recover in the US during the first few months of 2010, growth in revenues per available room entered positive territory for the first time in nearly 18 months.

Additionally, project cancellations at the height of the downturn means that supply growth is likely to remain weak in the short-term.

Intercontinental's strong first-quarter performance, announced in May, highlighted these positive trends across each of its operating regions.

The company's rooms are mainly focused towards the medium and high-end price range. As a result of the downturn, many luxury hotels reduced their room rates and began competing directly with Intercontinental on price. As the recovery takes hold, and luxury rates recover, we expect customers to move back towards Intercontinental's mid-range offering.

Although Intercontinental trades at a premium to the European hotel sector, it is significantly cheaper than its US peers, which represent a more appropriate comparison.

This article is for information and discussion purposes and does not form a recommendation by the manager to invest or otherwise.

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