The Intergroup Corporation

INTG Details

Hotel Segment to Focus on Guest Satisfaction: The Intergroup Corporation (NASDAQ: INTG) has two operating segments- (i) Hotel and, (ii) Real estate. Revenue from hotel primarily consists of hotel room rentals, revenue from accommodations sold in conjunction with other services like package reservations, food and beverage sales and other ancillary goods and services. The company generates revenue from real estate through rental income from residential and commercial property leases.

Q1FY20 Financial Highlights for the period ended 30 September 2019:INTG announced its first-quarter results for FY20 wherein, the company reported total revenue of $19.146 million as compared to $19.489 million in Q1FY19. Net income, during the quarter, stood at $0.644 million as compared to $1.128 million in the previous corresponding quarter. The Company reported net income from Hotel operations at $1.69 million in Q1FY20 compared to net income of $2.544 million during the previous corresponding quarter. The decrease in net income is primarily attributable to reduced revenues and increased operating expenses. INTG reported a net loss on marketable securities of $0.449 million during Q1FY20 as compared to a net loss on marketable securities of $0.171 million during the previous corresponding period. Interest expense on mortgage stood lower at $2.397 million as compared to $2.565 million in Q1FY19. Net income from real estate operations for Q1FY20 increased by $0.227 million as compared to Q1FY19 due to an increase in revenues and reduced mortgage interest expense. During the quarter, the company reported cash and cash equivalents of $12.194 million, total assets of $129.861 million, and shareholder’s deficit of $68.006 million.


Q1FY20 Income Statement (Source: Company Reports)

Outlook:Management believes that its cash, marketable securities, and the cash flows generated from real estate assets, will be adequate to meet the Company’s current and future obligations. Additionally, the Management believes that there is significant appreciated value in the Hotel property to support additional borrowings, if necessary. In order to make a large impact on guest experience, the Hotel segment will continue training team members on Hilton brand standards and guest satisfaction, hiring and retaining talents in key operations, and enhancing the arrival experience. The Management is looking to review and analyze the company’s real estate operations to improve occupancy and rental rates and to reduce expenses for improved efficiencies.
 
Stock Recommendation:The stock closed at $35.50 with a market capitalization of ~$81.82 million as on 21 November 2019. Currently, the stock is trading near the upper band of its 52-weeks trading range of $28.95 and $37.03. The stock has generated returns of 16.355% and 11.704% during the last six-months and twelve-months, respectively. Over the years, the business has evolved into a diversified operating company with operations in multi-family and commercial real estate and an interest in the hospitality industry through its investment in the Hilton San Francisco Financial District. Despite an uncertain economy, the Hotel has continued to generate positive operating income. The company prioritizes on guest satisfaction and believes that enhancing the guest experience differentiates the hotel from the competition and focuses on building sustainable guest loyalty. Looking at the valuation, the stock is available at an enterprise value (EV) to sales of 3.1x on trailing twelve months (TTM) basis as compared to the industry median of 1.8x. On EV/EBITDA front, the stock is available at 11.9x on TTM basis as compared to the industry median of 9.3x. Considering the 1QFY20 results, current trading levels, higher valuations, etc., we recommend an “Expensive” rating on the stock at the market close of $35.50, down 3.9% as on 21 November 2019.
 
 
INTG Daily Technical Chart (Source: Thomson Reuters)

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