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FTSE falls ahead of US debate and Opec, while downgrade hits InterContinental

Discussion in 'Market News' started by Lily, Sep 26, 2016.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
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    Hotels group drops on concerns about outlook for US business

    Leading shares are falling back on a cocktail of concerns.

    Investors are nervous ahead of the debate later between US presidential candidates Hillary Clinton and Donald Trump, as well as uncertain over the state of play of Brexit. On top of that, oil producers are meeting in Algeria with the possibility of an agreement to support prices, albeit a slim one, which as seen crude prices edge higher.

    IHG has outperformed peers year to date (in US dollars) and now trades in line despite its weaker revenue per available room /system growth. Meanwhile, multiple signals are flashing that the US hotel cycle is peaking. We cut RevPAR forecasts, partly offset by an assumed $500m buyback, but IHG looks fully valued so we move underweight.

    IHG has enjoyed a strong re-rating. [It] has an attractive and resilient business model, with an attractive 5.6% free cash flow yield, and M&A is a theme, but it has historically traded at a discount to peers, partly as its RevPAR and net system growth have underperformed.

    European markets have started the week lower, following Asian markets down, despite a slight recovery in oil prices. The rally in markets started to come unstuck on Friday after investors became significantly more bearish about the prospect of any OPEC deal, with short positions escalating sharply. While oil prices have bounced slightly this morning, on hopes that Saudi Arabia may be prepared to cut output at a later date, fears are growing that oversupply in the oil market will subdue prices for the foreseeable future.

    Possibly the most significant risk event for markets this year, the US election is already compelling and tonight’s first televised US Presidential debate is likely to prove must-watch TV. So far, the only markets and sectors to pay much attention to the upcoming election are US healthcare stocks and Mexican assets - but with a little over a month before November’s vote, investors need to start trying to establish what the result might mean for markets more widely.

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