FTSE slips ahead of UK rate meeting but Direct Line and InterContinental climb

Discussion in 'Market News' started by Lily, Aug 2, 2016.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
    Likes Received:
    Investors cautious before UK central bank decision amid economy concerns

    Leading shares are slipping back following recent disappointing economic data - the latest being poor construction figures - and continuing weakness in the oil price.

    But Direct Line and InterContinental Hotels have bucked the downward trend after their latest updates.

    Direct Line surprised with an increase in reserve releases, a large part of which is one-off but provides strong support to solvency and the dividend. The solvency ratio was a healthy 184%, well above the usual 150% level following the approval of its partial internal model. This has allowed the company to offer an interim special dividend of 10p on top of the basic dividend per share.

    After a weak share price performance, these results will go down well and whilst guidance is unchanged, 2016 underwriting results should come in at the top end of the range. At a PE of 14 times, the shares are fairly valued but offer a ‘best in class’ dividend yield (around 7%).

    A 20% pretax profit beat, an interim special well ahead of expectations, strong capital position, improved outlook, should be taken well, albeit the shares are not cheap on 1.9 times 2016 estimated total net asset value (top end of its historical range).

    The fundamentals for our industry, and particularly for IHG as one of the largest branded players, remain compelling...Despite the uncertain environment in some markets, we remain confident in the outlook for the remainder of the year.

    Underlying earnings before interest and tax of $344m represented growth of 10% and was marginally ahead of consensus expectations of around $331m (Bloomberg). The key drivers were RevPAR growth of 2.0% and net system growth of 3.6%, consistent with medium term guidance. Following the return of $1.5bn to shareholders, net debt of $1.8bn was as expected and represents leverage of 2.3 times EBITDA.

    Group RevPAR grew by 2.5% in the second quarter of 2016, faster than +1.5% in the first quarter, and more comparable to 2.4% from the fourth quarter of 2015. Part of the improvement reflected an earlier Easter. Also weakness in oil producing states in the US is starting to annualise: RevPAR in oil producing states fell by 6.3% and the remainder grew +3.7%.

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