InterContinental (LON:IHG) Hotels Group PLC (NYSE:IHG), a global hospitality leader, announced today the signing of new co-brand credit card agreements in the United States, set to significantly enhance its ancillary revenue streams. These agreements, effective immediately, extend IHG's partnership with JPMorgan Chase (NYSE:JPM) Bank, N.A. (Chase) and other financial services partners through to 2036.
The new contracts aim to bolster the IHG One Rewards program by driving membership and loyalty, thereby increasing business for IHG's hotels. The company anticipates a substantial rise in total fees from the start of the new agreements, with projections showing a doubling of the $39 million recognized in operating profit from reportable segments in 2023 to 2025, and more than a tripling by 2028.
In addition to the long-term revenue growth, IHG expects to receive upfront cash inflows totaling $137 million pre-tax over the coming months, which will be recognized within fee income during the term of the agreements.
The IHG One Rewards program is set to reach approximately 145 million members globally by year-end, with a 10% year-on-year growth in 2024 enrollments. Notably, loyalty members typically spend about 20% more than non-members, and the first half of 2024 saw a 15% year-on-year increase in Reward Night redemptions.
IHG's co-brand credit card holders have shown even greater engagement, with record levels of new card accounts and double-digit growth in card spend in 2023, continuing into 2024. Compared to two years prior, new accounts have surged by over 60%, and total card spend has risen by around 30%.
The new agreements are part of IHG's strategic plan to expand ancillary products and fee streams, contributing to the company's goal of improving fee margin annually by 100-150 basis points from operational leverage.
Elie Maalouf, IHG's CEO, expressed confidence in the growth and shareholder value driven by the new agreements, highlighting the opportunity for enhanced customer engagement with IHG and its loyalty program.
In other recent news, InterContinental Hotels Group reported a 1.5% increase in room revenue for the third quarter, largely due to robust summer demand in Europe. The company also continued its share buyback program, purchasing and subsequently cancelling shares to potentially increase the value of remaining shares. Goldman Sachs (NYSE:GS) upgraded InterContinental's shares from 'Neutral' to 'Buy', projecting a 15.1% compound annual growth rate in earnings for the company from 2023 to 2028.
Further, InterContinental announced the approval of a £4 billion Euro Medium Term Note Programme as part of its financial strategy. The company also declared an interim dividend for 2024 at a rate of 40.8 pence per ordinary share, reflecting its financial performance and commitment to shareholder value.
InvestingPro Insights
IHG's strategic move to enhance its ancillary revenue streams through new co-brand credit card agreements aligns well with its current financial performance and market position. According to InvestingPro data, IHG boasts a market capitalization of $19.32 billion USD, reflecting its significant presence in the global hospitality industry. The company's revenue for the last twelve months as of Q2 2024 stands at $3,824 million USD, with a robust operating income margin of 25.78%.
InvestingPro Tips highlight that IHG has raised its dividend for 3 consecutive years, demonstrating a commitment to shareholder returns. This trend could be further supported by the projected increase in fees from the new credit card agreements. Additionally, IHG operates with a moderate level of debt, which may provide flexibility for future investments in loyalty programs and ancillary services.
The company's strong financial performance is also reflected in its stock price, which is trading near its 52-week high. This aligns with the positive outlook presented in the article regarding IHG's growth strategies. However, investors should note that the stock is trading at a high P/E ratio of 31.37, which may indicate high growth expectations are already priced in.
For readers interested in a deeper analysis, InvestingPro offers 17 additional tips for IHG, providing a comprehensive view of the company's financial health and market position.
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