InterContinental Hotels Group PLC And Whitbread plc: Which One Is The Better Pick For Your Portfolio?

Hotel giant InterContinental Hotels (LSE: IHG) and Costa coffee owner Whitbread (LSE: WTB) have both reported impressive sets of quarterly results today. 

Indeed, InterContinental Hotels — which owns the Holiday Inn brand — reported its best quarter in more than two years today, thanks to a strong performance within the company’s UK, US and German markets.

Revenue per available room (RevPAR) across the group rose 7%, compared to the same period a year ago. RevPAR within the group’s US division climbed 8.4%, beating estimates, which were calling for growth of 7.8%.

However, growth outside of Europe and the US was less impressive. Chinese RevPAR ticked higher by just 0.8%, compared to growth of 3% during the previous nine months. 

Meanwhile, the performance of Whitbread over the past quarter was so impressive that the company’s management is now planning an aggressive global expansion program.

In particular, the group reported that during the six months to August, pre-tax profit rose 20.5% on sales of 13%.

Following this success the Costa owner, which also operates the Premier Inn budget hotel chain, plans to open another 4,500 new Premier Inn rooms within the UK, and a net 230 new Costa coffee stores around the world in the current financial year. The group is planning to double the number of Premier Inn rooms it has in London by 2018.

Tough choices

There’s no denying that both InterContinental and Whitbread have put in a strong performance this year, although Whitbread’s performance is easily the more impressive. 

And this is not the first time Whitbread has achieved such an impressive rate of growth. For example, the City expects the company to report earnings per share of 203p during the group’s 2015 financial year. If the group hits this target then management will have succeeded in expanding EPS by 124% since 2010. That’s a compounded annual growth rate of around 18%. 

Unfortunately, this rate of growth has impressed investors so much that they are willing to pay a premium for the company’s shares. Specifically, the company currently trades at a forward P/E of 20.9. The shares support a token dividend yield of 1.6%, around half the FTSE 100 average yield. 

InterContinental is also trading at a demanding valuation, despite the company’s flagging growth. City analysts expect InterContinental’s earnings to fall by 3% this year but the company trades at a forward P/E of 23.7. What’s more, the company is currently fighting a costly battle with activist hedge fund Marcato Capital Management, which is pushing for InterContinental to appoint advisers and look at a tie-up with a larger rival.

Comes down to valuation 

At the end of the day, Whitbread is growing much faster than InterContinental and the company is trading at a lower valuation. For this reason, Whitbread appears to be the better investment for those investors looking for growth at a reasonable price.