UBS has upgraded its recommendation for hotels group InterContinental (IHG) from 'sell' to 'neutral' and substantially raised its target price from 1,300p to 2,100p, labelling the business a 'high-quality structural story'.

The broker said on Tuesday: "We think the market is right to view IHG as a high-quality play on the structural growth of the hotel industry, geared to cyclical recovery. Indeed, we think these attributes explain why the shares have risen more than 30% over the last two years."

Nevertheless, UBS highlighted some stock-specific growth issues which the market may not yet have priced in, such as: slowing pipeline growth and downward pressures on revenue per available room (RevPAR) growth.

IHG managed to grow the number of rooms active in its portfolio by an average 3.0% per annum between 2004 and 2012, but has seen numbers fall in the last three years, the broker said.

"The launch of new brands may help volumes, but otherwise we think the company is reliant on driving occupancy and pricing."

Meanwhile, UBS believes that potential new room openings could put extra pressure on the company to grow RevPAR, a key performance indicator in the hotel industry, which might be view negatively by the market.

Nevertheless, the stock reacted well to the upgrade on Tuesday, rising 2.13% to 2,017p by 11:05.

BC

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