Morning Note: Market news and strong results from hotelier IHG Group.

Market News

Donald Trump’s new tariffs officially took hold, with higher rates for almost all US trading partners starting just after midnight. Earlier, he threatened to impose a 100% tariff on foreign chips, exempting companies that move production to the US. Apple CEO Tim Cook announced plans to invest an additional $100bn in domestic manufacturing.

Trump also moved to raise tariffs on Indian goods to 50% over the country’s Russian energy imports, with enforcement starting in three weeks. A 39% surcharge on exports from Switzerland to the US is now in effect. The tariff applies to products such as Swiss-made luxury watches and Nespresso coffee capsules, but pharmaceuticals and gold are exempt.

Treasuries were mixed with some curve steepening after a $42bn 10-year auction drew weak demand. The 10-year currently yields 4.25%. Gold has risen to $3,395 an ounce, while Brent Crude settled at $67.20 a barrel, following its fifth straight decline.

US equities rose last night – S&P 500 (+0.7%); Nasdaq (+1.2%) – with big tech helping to drive index performance. Apple led the mega caps higher on the heels of its $100bn US investment. In Asia this morning, equities moved higher: Nikkei 225 (+0.6%); Hang Seng (+0.8%); Shanghai Composite (+0.2%). China’s exports rose 7.2% in July from a year earlier, topping estimates. Toyota cut its annual guidance due to a $9.5 billion hit from US tariffs. 

The FTSE 100 is currently 0.3% lower at 9,136, while Sterling trades at $1.3375 and €1.1445. The Bank of England is set to announce their rate decision today at noon. Markets are fully pricing in a 25 basis points cut, with another one likely by year-end. This is despite the fact that headline CPI remains well above the 2% target at 3.6%. UK house prices rose at the fastest pace since the start of the year, Halifax says suggesting the market is stabilising.

Source: Bloomberg

Company News

InterContinental Hotels Group (IHG) has this morning released first-half results which highlight profit growth ahead of market expectation driven by strong margin expansion. Although increased volatility in the macro environment caused a slowdown in the US, the company says many of the shorter-term economic uncertainties are subsiding and it remains on track to meet full-year consensus profit expectations. The dividend was increased by 10% and the group has continued with its share buyback programme. The shares have been a strong performer over the long-term but have seen some profit taking so far this year. In early trading this morning, they are up 6%.

IHG owns a portfolio of 20 attractive brands across all price tiers (including Crowne Plaza, InterContinental, Holiday Inn, and Six Senses) and has a strong operating system, both of which drive customer loyalty and pricing power. The group operates a highly scalable, asset-light model, based on franchising and management contracts, with low capital intensity and high returns. The model also means the group doesn’t bear the operational costs of running a hotel. The company is focused on delivering industry-leading net rooms growth over the medium term. It currently has a 4% global market share and a 10% share of the new room pipeline. At the end of June 2025, the global estate was 999k rooms across 6,760 hotels, with 67% in midscale segments and 33% in upscale and luxury. Annual gross revenue generated by the group’s hotels is more than $33bn.

Long-term growth is being driven by a rising global middle class with a desire to travel. In the business market, IHG’s weighting is towards essential travel and non-urban markets. Last year, the group set out a financial framework for the medium to long term, targetting:

·       high single digit percentage growth (i.e. 7%-9%) in fee revenue, through combination of RevPAR and system size growth, together with 100‑150bps of fee margin expansion, annually on average. This excludes the positive margin impact of the new credit card deal.

·       100% conversion of adjusted earnings into adjusted free cash flow, supporting investment in the business to optimise growth, sustainably growing the ordinary dividend and returning surplus capital.

·       12-15% adjusted EPS compound annual growth rate, including the assumption of ongoing share buybacks.

During the first half of 2025, revenue was $1,175m, up 5% in underlying terms. Operating profit grew by 12% in underlying terms to $604m, above the market forecast. Fee margins rose by an impressive 390 basis points to 64.7%, with around 260bps driven by operational leverage as the growth in fee revenue was achieved on a fee business cost base that was lower year-on-year, the latter including benefits from the global efficiency programme and ongoing actions to drive cost productivity. The other 130bps was due to incremental fees from the US co-brand credit card agreements and from the sale of certain loyalty points.

This is well ahead of the group’s previous commentary that fee margins can continue to expand (by 100-150 bps p.a.) as the Rest of the World business catches up with the 80% margin achieved in the US.

Adjusted EPS grew by 19% to 242.5c, spurred on by the reduced number of shares following the buyback (see below).

Global revenue per available room (RevPAR) – the key measure of industry performance – grew by 1.8%, with Q2 (+0.3%) lagging Q1 (+3.3%). The guest appeal of the group’s brands has continued to support pricing, with average daily rate up 1.4% and occupancy up 0.3 percentage points. Each sector generated growth in rooms revenue on a comparable basis: Business (+2%), Leisure (+1%) and Groups (+2%). There is still a wide regional variation across the business.

·       In Americas (the group’s largest division), RevPAR was up 1.4% in the half, with a decline of 0.5% in the second quarter (and the US down 0.9%). This move included the adverse impact from the shift in timing of Easter between March and April, and a broader impact in Q2 on certain types of business and leisure travel in light of macro-economic developments.

·       The EMEAA region grew by 4.1%, with Q2 (+3.0%) lagging Q1 (+5.0%), in part due to fewer travel-related international events compared to the prior year. East Asia & Pacific continued to benefit from higher levels of inbound leisure travel from Greater China.

·       Greater China RevPAR fell by 3.2%, although the company remains upbeat about the attractive long-term secular demand drivers.

IHG continued to open new hotels and sign more rooms into its pipeline as owner demand for its world class brands continues to increase. During the first half, 31.4k rooms across 207 hotels were opened, a record level. Gross system size growth was 7.7% year-on-year, while after 19.9k removals, net system size growth was 4.6% year-on-year. Excluding the previously disclosed impact of removing rooms previously affiliated with The Venetian Resort Las Vegas, net growth was an impressive 5.4%.

Demand for quick-to-market conversions to IHG’s brands continues to be high, representing around 57% of openings in the first half. This is a big positive given the time to open is much shorter than with a new build.

IHG signed 51.2k rooms (324 hotels) in the first half, up 15%, in underlying terms excluding the acquisition of Ruby, a premium urban lifestyle brand with 30 hotels. This leaves a global pipeline of 338k rooms (2,276 hotels), up % year-on-year (+4% YTD), and 34% of the current system size, providing good growth visibility.

The asset-light model means IHG has low investment requirements and a negative working capital cycle. The group operates a conservatively leveraged business model and maintains strong liquidity.

During the first half, adjusted free cash flow rose from $131m to $302m, with the increase partly due to the prior year’s higher spend in the System Fund. Net debt rose from $2.8bn to $3.4bn, mainly due to share buybacks and adverse currency movements, with gearing of 2.67x net debt to EBITDA, at the bottom end of its 2.5x-3.0x target range.

The group is returning surplus capital through share buybacks – 47% of a $900m programme was completed by 30 June. In addition, the half-year dividend has been raised by 10% to 58.6c.

On a prospective basis, given analyst consensus expectations for growth in EBITDA and cash generation in 2025, together with the buyback and the Ruby acquisition, leverage is expected to end 2025 around the middle of the target range of 2.5-3.0x.

As an asset-light, fee-based, predominantly franchised business model, IHG has no material direct exposure to tariffs on the fees charged to and therefore the revenues received from hotel owners, or on the operating costs that IHG incurs. Clearly, however, periods of macro-economic uncertainty can lead to broader impacts on business and consumer confidence, which can in turn impact travel spending patterns in the shorter-term.

Looking ahead, the company remains on track to meet full-year consensus profit and earnings expectations: EPS of $5.03. The statement highlights that while some shorter term macro-economic uncertainties remain, many are subsiding, and management remains confident in the strength and resilience of IHG’s enterprise platform and its ability to capitalise further on its scale, leading positions, and the fundamental growth drivers for its markets.

Source: Bloomberg