Nomura has retained its 'neutral' rating and 1,670p target price for Holiday Inn owner InterContinental Hotels (IHG), recommending investors to wait for a better entry point to buy the stock.

Full-year profit before tax at IHG came in at $560m, ahead of Nomura's $556m forecast and the $551m consensus estimate.

Meanwhile, revenue per available room (RevPAR) growth was 5.2%, implying 3.9% growth in the fourth quarter alone. "This suggests an impressive resilience despite the impact of Hurricane Sandy and fiscal-cliff uncertainty in the final quarter," the broker said.

However, Nomura highlighted management's comments about margins reverting back to "normal levels of growth" in 2013. The broker said that this could reflect IHG adding cost in emerging markets as well as a lower profit-per-room contribution from additions in these regions.

As such, Nomura said that the underlying upgrade (implied by a $31m liquidated damages receipt in the Americas in the first quarter) is likely to lower.

As for the stock's valuation, the shares are trading at 18.8 times 2013 (estimated) earnings, broadly in line with the US sector (trading at 19 times earnings). It is also trading at an EV/EBITDA multiple of 12.7 (sector: 11.2x).

"Its longstanding discount to the US peers has now (fairly, in our opinion) closed. However, buying the stock at this level would rely on the sector re-rating back to the top of the EV/EBITDA range from the last cycle (5-15x)."

The broker concluded, saying: "We see scope for the gradual re-rating to continue supported by robust RevPAR growth and firm asset values in industry transactions. However, given the small underlying downgrade implied by management's guidance, we would look for a better entry point on the stock."

Shares were trading 2.2% lower at 163.15p in afternoon trading on Tuesday.

BC

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