Morning Note: Market News and Updates from IHG and AB InBev

Stock-index futures and Asian shares rose as President Donald Trump revealed plans to unveil a “major” trade deal today, boosting optimism that the US was making headway in negotiations. The administration is expected to announce an agreement with the UK, according to people familiar with the matter. Earlier, the president said he’s unwilling to pre-emptively cut tariffs on China to jump-start more talks with Beijing.

The Federal Reserve held its benchmark rate steady as expected and warned of rising risks of both inflation and unemployment, reinforcing its cautious stance on future rate changes. Fed Chair Jerome Powell also stated that the central bank is not considering a pre-emptive rate cut in response to potential economic fallout from tariffs.

US equities nudged higher last night – S&P 500 (+0.4%); Nasdaq (+0.3%). Google owner Alphabet fell by 7% after a Reuters source said Apple is planning to add AI search to its Safari internet browser. Google is currently the default search engine on Safari, for which it pays Apple around $20bn a year.  

The White House is planning to scrap Biden-era AI chip curbs as part of a broader effort to revise restrictions, according to people familiar. Shares of Nvidia and other chipmakers rose.

The FTSE 100 is currently 0.2% higher at 8,573. The Bank of England rate cut today is locked in, Bloomberg Intelligence said. MPC members are expected to lower by a quarter point to 4.25% and may signal that another move is likely in June. Sterling strengthened to $1.3280 and €1.1760 on hopes of a trade deal.

Gold slipped to $3,338 an ounce, while Brent Crude trades at $61 a barrel. Chinese copper demand is strong, with import premiums hitting $100 a ton, the highest since December 2023. Goldman raised its price forecasts for this year.

Source: Bloomberg

Company News

InterContinental Hotels Group (IHG) has released its Q1 2025 results which highlight that, despite increased volatility in the macro environment, trading has been resilient and development activity strong. Looking ahead, while noting that some forward economic indicators have softened, the group remains on track to meet full-year consensus profit expectations. With financial gearing below target, 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 3%.

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 March 2025, the global estate was 987k rooms across 6,668 hotels, with 67% in midscale segments and 33% in upscale and luxury. In 2024, gross revenue generated by the group’s hotels was 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 quarter of 2025, global revenue per available room (RevPAR) – the key measure of industry performance – grew by 3.3%. The guest appeal of the group’s brands has continued to support pricing, with average daily rate up 2.2% and occupancy up 0.6 percentage points. Each sector generated growth in rooms revenue on a comparable basis: Business (+3%), Leisure (+2%) and Groups (+5%).

There is still a wide regional variation across the business. In Americas (the group’s largest division), RevPAR was up 3.5%, with the US also up 3.5%. We note that March and the period since the quarter end has seen RevPAR broadly flat. The current position of revenue on-the-books for comparable hotels for the balance of Q2 is also currently broadly flat. The company remains confident for growth beyond, as economic uncertainty subsides and fundamental industry tailwinds prevail.

The EMEAA region grew by 5.0%, with East Asia & Pacific continuing to benefit from increased levels of inbound leisure travel from Greater China which contributed to strong double-digit growth in numerous countries.

Greater China RevPAR fell by 3.5%, similar to the previous quarter, as the group came up against strong comparatives and further increases in outbound leisure travel. Looking to further in the year, there is an easing in the strong comparatives. At the end of the quarter, IHG introduced a series of targeted enhancements to its four upper-midscale brands in Greater China — Atwell Suites, EVEN Hotels, Holiday Inn, and Holiday Inn Express. Focused on optimising solutions for hotel owners and ongoing brand refreshments, these initiatives are designed to deliver more efficient and higher-return solutions for hotel owners in China.

IHG continued to open new hotels and sign more rooms into its pipeline. During the quarter, 14.6k rooms across 86 hotels were opened, more than double the same period last year. Gross system size growth accelerated to 7.1% year-on-year (+1.5% YTD), while after removals, net system size growth was 4.3% year-on-year. Excluding the previously disclosed impact of removing rooms previously affiliated with The Venetian Resort Las Vegas, net growth was 5.0%.

Demand for quick-to-market conversions to IHG’s brands continues to be high, representing around 60% of openings and 40% of organic signings in the quarter. This is a big positive given the time to open is much shorter than with a new build.

IHG signed 25.8k rooms (158 hotels) in the quarter, up 46%, boosted by the acquisition of Ruby, a premium urban lifestyle brand with 30 hotels. This leaves a global pipeline of 334k rooms (2,265 hotels), up 9.4% year-on-year, and 34% of the current system size, providing good growth visibility.

As usual at this stage of the year, the group doesn’t provide an update on profitability or its financial position. 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. At the end of last year, net debt was $2.8bn, with gearing of 2.3x net debt to EBITDA, below its 2.5x-3.0x target range. In response, the group is returning surplus capital through share buybacks – $324m of a $900m programme has been completed.

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 still expected to end 2025 comfortably around the lower end 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, while noting that some forward economic indicators have softened, IHG’s comparable on-the-books global revenue for Q2 continues to show growth on the same position a year ago. The group’s ability to capture demand across geographies and chain scales, as well as being heavily weighted to domestic stay occasions, are resilient strengths of the business. As a result, while still early, the company remain on track to meet full year consensus profit expectations.

Overall, the company 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

Anheuser-Busch InBev has released Q1 results which were ahead of market expectations, highlighting a solid start to the year with EBITDA growth at the top-end of the company’s outlook. Full-year profit guidance has been confirmed. In response, the shares are up 3% in early trading and provide a good read-across for industry peer Heineken.

AB InBev is a global brewing company with more than 500 beer brands, including Budweiser, Stella Artois, Becks, Corona, Modelo, and Leffe. The group’s premium portfolio represents over 30% of revenue and continues to benefit from the global trend to ‘drink less, drink better’. New products continue to contribute to growth, with the group’s innovation portfolio making up 10% of revenue. The portfolio has been expanded to address key consumer trends in health and wellness (low and no alcohol) and into products beyond beer (i.e. hard seltzers and canned cocktails). In 2024, the company generated sales of more than $60bn.

In the three months to 31 March 2025, revenue grew by 1.5% in organic terms to $13.6bn, with growth in approximately 50% of the group’s markets. Revenue per hl was up 3.7%, driven by ongoing premiumisation and revenue management initiatives. Total volume fell by 2.2% during the quarter, in part due to calendar timing impacts, and was made up of beer (-2.5%) and non-beer (-0.2%).

Volume growth in South America (+1.3%) was more than offset by declines in EMEA (-1.2%), North America (-6.4%), Middle Americas (-1.7%), and Asia Pacific (-6.2%).

Combined revenue of the group’s global brands (Budweiser, Stella Artois, Corona, and Michelob Ultra) grew by 4.4% outside their home markets.

The premium portfolio grew revenue at 1.8%. The global no-alcohol beer portfolio continued to outperform, delivering 34% revenue growth in the quarter. Beyond Beer continued to add profitable growth, increasing revenue by 16.6%, led by double-digit growth of Cutwater and Nütrl in the US and Beats in Brazil.

Investment in direct-to-consumer ecommerce platforms continued to pay off and the group now generates 72% of its revenue through B2B digital platforms.

EBITDA, the group’s key measure of profitability, grew by 7.9% in organic terms to $4.9bn, well ahead of the market forecast for growth of 3.1%. The margin rose by 218bps to 35.6%, driven by top-line growth, cost of sales tailwinds, and disciplined overhead management. Underlying EPS rose from 75c to 81c.

The group’s priority for capital allocation is to invest behind its brands and to take full advantage of organic growth opportunities. Second is deleveraging the balance sheet – net debt to EBITDA remains high (2.9x at the end of 2024). The final priority is the return of excess cash to shareholders in the form of dividends and share buybacks – a $2bn share buyback programme was announced in October 2024.

Looking forward, the group continues to expect EBITDA to grow in line with its medium-term outlook of 4%-8%.

Source: Bloomberg