Many FTSE 100 stocks are still attempting to revitalise their fortunes after to the effects of the pandemic. Should I add InterContinental Hotels Group (LSE:IHG) shares to my holdings as a recovery play?
Worldwide hotelier
Best known as IHG, the FTSE 100 incumbent is one of the world’s leading hotel businesses. It has over 6,000 destinations throughout the world spread across 16 brands. Some of its best known brands are InterContinental, Holiday Inn, and Crowne Plaza.
As I write, IHG shares are trading for 5,080p. At this time last year, the shares were trading for 4,892p, which is a modest 3% return over a 12-month period. With pandemic restrictions easing, especially here in the UK, could IHG be a good long-term recovery option?
For and against investing
FOR: IHG’s business model is one of its best attributes, in my opinion. Its vast presence throughout the world, as well as a range of brands, caters to all types of consumers. It possesses luxury holiday brands, as well as budget and corporate business brands as well. In addition to this, due to its diverse operations, it has a strong domestic market in each of its territories. I believe these attributes could help boost recovery and performance in the coming months and years. If one area is struggling, for example, luxury hotels that may need international flights to reach them, this area can be offset by the urgeoning domestic vacation market.
AGAINST: The pandemic has not been easy to navigate for IHG and many other FTSE 100 stocks. Lack of custom and uncertainty about the virus itself, especially at the beginning, caused performance to drop. My concern here is that new variants, as well as differing restrictions around the world, could continue to hamper IHG’s longer-term recovery.
FOR: IHG has a good track record of performance prior to the pandemic and its recent update also offers me some insight towards potential future prospects. I do understand that past performance is not a guarantee of the future, however. A Q3 update released in October mentioned room revenue compared to 2020 levels is up 66% and edging closer towards 2019 levels. Operationally, it opened 79 new hotels in the quarter and has more in the pipeline. One eye on growth in the future is a sign of confidence, in my eyes.
AGAINST: IHG shares do look a bit expensive to me currently. If I factor in other macroeconomic pressures right now such as soaring inflation, rising costs and the supply chain crisis, all of which could affect recovery and financials, my bear case grows substantially.
A FTSE 100 stock I’d avoid currently
Overall, IHG looks like a great company on paper to me. It has a diversified business model with a worldwide presence and a decent balance sheet too. Performance has not quite reached pre-pandemic levels and the shares do look a bit expensive. I’m not going to add the shares to my holdings currently, due the ongoing pandemic-related threats as well as current macroeconomic pressures. I will keep an eye on developments, however, and reconsider my position if things change.