The resilience of the post-pandemic travel and leisure boom has worked wonders for InterContinental Hotels’ profits and its shares, which have doubled since their collapse in 2020. But all good things must come to an end, according to JP Morgan, whose analysts have been surprised by the group’s outperformance.
Although the US bank’s analysts pointed to the hotel operator’s solid track record and defensive asset-light business model, they argued that the risk-reward profile of the shares is now “highly unappealing” and downgraded their rating of “neutral” to “underweight”.
They reckon the FTSE 100 group, which left investors disappointed when it failed to announce a hoped for cash return a couple of weeks ago, is at the “end of the earnings upgrade cycle”, unlike competitors Whitbread and Accor, given that revenue per available room — or revpar — in the United States has broadly normalised and that this year’s £750 million buyback is coming to an end.
Investors checked out, with IHG down 182p, or 3 per cent, to £58.10.
IHG was joined at the foot of the FTSE 100 by the oil giants. BP’s underwhelming third-quarter results soured sentiment, resulting in the shares falling 24p, or 4.6 per cent, lower to 502½p. Concerns an update on Thursday from Shell could be just as disappointing caused its shares to retreat 40½p, or 1.5 per cent, to £26.47.
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A drop in copper prices weighed on Glencore, off 16p, or 3.5 per cent, at 435¼p, and Antofagasta, which slipped 24p, or 1.8 per cent, to £13.45.
The weakness among energy groups and other commodity-focused stocks pulled the FTSE 100 into the red with the index 5.67 points, or 0.1 per cent, down at 7,321.72, while the FTSE 250 fared better, rising 65.46 points, or 0.4 per cent, to 17,083.05.
London’s benchmark index has shed 3.8 per cent over the month. The more domestically focused FTSE 250 is off 6.5 per cent, its biggest monthly fall in more than a year.
Investors did find some reasons to be cheerful. Expectations that the Bank of England will pause its monetary tightening appeared to drive up rate-sensitive stocks, such as property groups and housebuilders. Segro rose by 19½p, or 2.8 per cent, to 712¾p. Unite was up by 17½p, or 2.1 per cent, to 868½p and Barratt Developments rose by 5¼p, or 1.3 per cent, to 414p.
Shareholders in Rolls-Royce were advised to fasten their seatbelts as its shares rose 13½p, or 6.6 per cent, to 215½p after JP Morgan analysts lifted its recommendation to “overweight” ahead of the investor day next month, which they think could be a catalyst for the shares. The bank also pointed to the engineer’s high exposure to the recovering aerospace cycle.
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Rolls’s civil aerospace business, which historically accounted for more than half the group, helped the company swing into a half-year pre-tax profit of £511 million and managed to cut its net borrowings to £2.8 billion. The bank said that it expects profitability in this division to “materially improve” due to commercial optimisation activities.
Smith & Nephew was given a leg up by HSBC, adding 13¼p, or 1.5 per cent, to 920¾p as the bank tipped clients to buy the medical equipment company ahead of its third quarter update on Thursday, which they expect will reveal strong organic growth at the upper end of guidance.
Spectris, the precision engineer, also won favour as bosses said they expect this year’s profits to come in at the top end of its guided range after a 5 per cent increase in third quarter sales. The shares finished 94p, or 3.1 per cent, higher at £31.
Sopheon soars on takeover talks
The value of Sopheon’s shares rose by more than four-fifths yesterday after the software group confirmed it is in talks with Wellspring Worldwide about a takeover that would value the company at almost £115 million.
The Aim-quoted group said it had agreed on key terms of a possible cash offer of £10 a share, a 104 per cent premium to Monday’s closing price, by Iops Buyer, a subsidiary of Wellspring.
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Wellspring, a US software provider spun out of Carnegie Mellon University twenty years ago, is backed by Resurgens Technology Partners, a private equity firm.
Sopheon said takeover talks were well advanced and it intends to unanimously recommend the offer to shareholders should a firm offer be made on current terms.
Quoted on London’s junior stock market almost a decade ago, Sopheon develops and markets software products, which have been used by more than 250 customers in over 50 countries.
In the six months to the end of June, the company reported revenues of $17 million and a pre-tax profit of £200,000.
The shares rose 430p, or 87.8 per cent, to 920p, to hit their highest point since late 2021.
Wall Street report
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After a choppy start, indices bounced back ahead of Wednesday’s rate decision with the Dow Jones industrial average up 123.91 points, or 0.4 per cent, to 33,052.87, but still on its longest quarterly losing streak since the three months ending March 2020.
