BofA lifts forecasts for IHG after strong Q3

(Sharecast News) - Bank of America has lifted its target price for shares of hotels group IHG after a stronger-than-expected third-quarter performance, saying that the stock is too cheap compared to the wider sector. IHG reported that revenue per available room (RevPAR) rose 10.5% year-on-year in the three months to 30 September, ahead of BofA's +9% estimate, driving year-to-date growth to 18.9%.

"Given better-than-expected travel demand, we now expect a higher RevPar in 4Q at +8.6% (vs 5.1%, previously) resulting in our +16% (from +14.9% before) estimate for 2023E," the bank said.

As such, BofA's price objective for IHG rises from 7,200p to 7,500p, while the bank retains a 'buy' recommendation.

"Shares trade on 12x EV/EBITDA, which is a 16% discount to US peers (wider than history at 4%) - we think this is unjustified, given IHG's high returns (>30% ROIC), earnings growth (15% 2023-27E) and cash return potential. Buy."

Nevertheless, results underwhelmed the market on Friday with the stock down 3.6% at 5,932p by midday.