With the Easter holidays drawing to an end, it has been a busy time for hoteliers. For UK-based InterContinental Hotels Group, owner of the Holiday Inn brand, investor suggestions that it should switch to a US primary listing have also kept it occupied.
Several companies are already making the move. The US offers a deeper pool of capital and higher valuations. UK-based investors have also shown little interest in British stocks in recent years, particularly pension funds.
In March, building materials behemoth CRH set out plans to shift its shares to the US, where it generates most of its profits. SoftBank has rejected a London listing for its Cambridge-based chip designer Arm, which the Japanese tech conglomerate acquired in 2016. Gambling group Flutter also wants a secondary US listing and may move its primary listing in future from the UK’s capital.
IHG’s main brands, Holiday Inn and Crowne Plaza, enjoy good name recognition in the US. New York has a larger, deeper pool of hotel company stocks than London. No wonder some shareholders have asked the company behind the Holiday Inn and Crowne Plaza brands whether it, too, will pack its bags.
IHG’s chief executive Keith Barr has dismissed this at present, despite warning “the general consensus is [London’s] not a very attractive place to list new companies versus other markets”. But this week he admitted to keeping an open mind in an interview with the Financial Times.
Most of the larger hotel groups own very few properties themselves. IHG is no exception. Since it became a standalone company in 2003 through the break-up of the UK leisure giant Six Continents, IHG has pursued an “asset-light” strategy. In practice, that has meant selling off hotels and charging other operators fees for using its brands, booking systems and other services.
Of the 6,000-plus hotels in IHG’s stable, less than 1 per cent are owned or leased. The majority are franchised, with about 30 per cent managed on behalf of third-party owners. That strategy has allowed IHG to return more than $14bn to shareholders for the past two decades.
For IHG, moving its shares to the US would make sense. The Americas, led by the US, are its biggest regional market by both revenue and operating profit.
In the hotel industry, revenue per available room, or RevPAR, calculated by multiplying occupancy rates by average daily room rates, is a key measure used by analysts to judge performance.
IHG’s RevPAR in the Americas — where IHG has more than 4,300 hotels — was 3.3 per cent higher last year than in 2019, shortly before pandemic lockdowns brought travel to a sudden halt. It remained below pre-pandemic levels in IHG’s other regions, although there were improvements in its businesses in Europe, the Middle East, Asia and Africa during the fourth quarter.
Analysts assess IHG using a forward enterprise value (market value plus net debt minus cash) to a multiple of earnings before interest, tax, depreciation and amortisation, a proxy for cash profits. The ratio is currently about 13 times, which is roughly in line with its five-year pre-pandemic average.
This means the group trades cheaply to US peers operating similar “asset-light” models. Marriott trades on more than 14 times and Hilton nearly 16 times, according to data provider S&P Capital IQ.
Even so, that gap does not look huge. Barr will want to weigh up the costs of moving the primary listing against the benefits of pricier shares.
The carpet is not always plusher in neighbouring rooms.
EU diesel: refiners’ crack of boom stalls
Before the Ukraine war, the EU depended on Russia for diesel as well as natural gas.
The trading bloc banned seaborne imports of Russian diesel on February 5. That prompted predictions of a supply crunch.
Instead, diesel prices and refining margins (spreads versus oil prices) have dropped. That is counter-intuitive.
Europe does not make enough of its own diesel. The continent has a structural shortage of some 1.4mn barrels daily, against production of about 5mn.
Russian diesel once filled half of that gap. Any disruption to supplies should in theory lift local diesel prices and shares in European refiners. These include biodiesel specialist Neste Oil of Finland and Spain’s Repsol. Yet no rally has materialised.
Tanker journeys have lengthened, however. That means less availability on these ships. Russian oil companies are sending more supplies to Russia-friendlier markets in Latin America and Africa. Europe has replaced Russia’s imports with diesel from Asia and the Middle East.
The Baltic Clean Tanker index, which measures the price of transporting refined products, has jumped 68 per cent since the February ban came into force.
Diesel refining margins have dropped, despite longer voyages. The differential between diesel and crude prices — known as the crack spread — is at one-year lows below $17 a barrel, according to Bloomberg’s ICE data. At the end of January the spread was about $44.
There are three possible causes.
First, global economic growth is slowing rapidly. Second, sophisticated refineries in China, India and Turkey appear to have upped output. They have happily bought discounted Russian crude oil. Urals-grade crude trades at a discount of $20-$30 a barrel below the Brent benchmark. India has increased its output this year, notes Rystad Energy.
Third, the EU had built buffer stocks of diesel supply before the import ban began. For all these reasons, share prices of European refiners have gone nowhere this year. They will remain in low gear unless economies pick up.
More positively, affordable diesel shows the EU is weaning itself off Russian energy supplies less painfully than predicted.
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