Broker tips: IHG, IWG, SSP

(Sharecast News) - Peel Hunt slashed its price target on InterContinental Hotels on Wednesday to 9,500.0p from 10,670.0p, citing weaker US travel data. The broker noted that IHG shares were down 17% year-to-date, while Marriott was down 2% and Hilton was up 8%.

"There is scope for IHG to catch up with peers," it said. "Despite lumpy US domestic travel data, we believe IHG can achieve 13% YoY operating profit growth in FY25E."

"In algorithm we trust", said Peel Hunt, noting that IHG only needs modest like-for-like growth to deliver its target 12-15% earnings per share compound annual growth rate and continue to return surplus capital.

"The S&P 500 and the share prices of IHG's competitors imply confidence in IHG's US prospects," it said. "We believe that IHG's share price will catch up with the positive reality. We reiterate our 'add' recommendation, but lower our target price."

Analysts at Berenberg slightly raised their target price on serviced offices provider International Workplace Group from 255.0p to 270.0p on Wednesday, pointing to the group's focus on free cash flow and buyback potential as its primary reasons.

Berenberg said IWG has a network bigger than that of its top ten competitors combined, spans over 120 countries and includes roughly 4,000 open centres, putting it at the inflexion point of its capital-light growth transition phase.

The German bank said the expansion of IWG's managed and franchised division, combined with structural tailwinds in the flex workspace market, created "a solid backdrop for the business".

"Given the strong levels of FCF that the company's growth plans are set to deliver, and with capital allocation focused on buybacks, we estimate that IWG could buy back circa $550.0m of shares over FY25-27E - equal to over 20% of its current market cap," said Berenberg, which reiterated its 'buy' rating on the stock.

Berenberg also noted that IWG trades on 6.3x FY25 enterprise value/underlying earnings ratio, with the multiple contracting to 4.3x in FY27.

Shares in SSP Group rose strongly on Wednesday after the hospitality firm pleased investors with the price range of the IPO of its joint venture in India - a high-growth market that house broker Shore Capital said is still underappreciated by investors.

SSP's plans to list its Travel Food Services joint venture with K Hospitality on 14 July at a price of INR 1,045-1,100 per share was equivalent to around 75.0p per SSP share, according to Shore Capital. This, the broker said, was "towards the higher end" of initial expectations, with SSP's stake alone being the equivalent to 43% of the group's current market capitalisation for just 15% of its earnings base.

The valuation of TFS, at around 40x implied earnings, was an "endorsement of the generational opportunity India offers and TFS' market-leading position", which Shore Cap said was yet to be fairly reflected in SSP's share price.

While the stock was currently trading at under 15x earnings, Shore Capital said the growth opportunity in India - along with the US market - warrants a "premium valuation".