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Analysts book into one big hotel company and check out of another

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Whitbread PLC (LON:WTB) has been upgraded by analysts at Citigroup as they see COVID-19 as presenting “a significant market share opportunity” against its branded rivals and smaller independent hotels.


Meanwhile, across the City, UBS downgraded Intercontinental Hotels Group PLC (LON:IHG) to ‘sell’ after the Holiday Inn and Crown Plaza owners shares outperformed peers as high domestic exposure (85%) underpinned recovery hopes.


Following the positive vaccine news at the start of the week, Citi analysts upped its hotel sector targets to reflect the greater probability of “normalized” earnings in 2022.


Forecasts for the sector from the bank’s leisure sector team had already reflected 2021 being a “transition year of progressive recovery”, which depended on successful treatments and vaccines being progressively rolled out, so new estimate changes only reflect recent data and company reporting.


READ: Whitbread swings to interim loss but continues expansion in Germany


Citi upgraded Premier Inn operator Whitbread to ‘buy’ from ‘neutral’ and yanked its share price target up to 3,400p from 2,350p, with the analysts noting the potential long-term structural impact from corporate travel being “disintermediated by virtual meetings and events”.


“We believe COVID-19 presents a significant market share opportunity versus largest branded competitors and independent hoteliers in the UK,” they added, expecting 2021 revenue per available room (RevPAR) to decline 56% and then 16% and 9% in 2022 and 2023 compared to 2020.


Citi’s target price for IHG was also increased to 3,940p from 3,100p, though the ‘sell’ recommendation remained.


At UBS, meanwhile, they said the recent rally looks “premature” and turned more cautious on IHG at is “highly exposed to new shifts in corporate travel that will likely dampen recovery hopes” in 2021 and recent data indicates already declining numbers of new hotel projects, “which will reduce the pipeline and translate into slower unit growth ahead”.


With the shares trading for 17 times 2022 earnings and 23 times those for 2022, analyst Bilal Aziz believes the strength of the business model is captured in the current share price, but the risks of a slower-than-expected RevPAR recovery “are likely underappreciated”.


UBS slashed its 2021 EPS forecast 25% and downgraded its rating from a previous ‘neutral’ but upped the share price target to 4,300p from 3,820p.

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