Investment Column: Don’t overstay your welcome with IHG

Author: Edited by Alistair Dawber

The group, which runs the Holiday Inn and Crowne Plaza chains, released its
second-quarter results yesterday, saying that revenue was down, revenue per
available room (a key measure in the industry) was down and it had recorded
a loss of $82m after last year’s $145m profit.

To make matters worse, the chief executive Andrew Cosslett said it would take
two years for the industry to make a full recovery. Looking at the morose
prognosis for business-class tickets from the airlines, a recovery for
InterContinental Hotels (ICH) may take even longer.

Clearly, and as regular readers would expect, the fact that ICH is struggling
has not come overnight and we have stressed on several occasions that
investors should avoid the shares.

However, on the whole, we have not got it right and, despite all the glum news
surrounding both the company and the industry, ICH’s stock price has
actually done rather well, rising by 23 per cent in the three months before
yesterday’s statement.

Add in the fact that the second-quarter loss was actually less than most
analysts predicted ? and that the group has cut $80m of costs ? and the “don’t
touch with a barge pole” argument is less clear cut.

Nonetheless, we still would not buy the shares. A loss is a loss, regardless
of whether or not it was a better loss than expected, and we would be very
nervous about holding a piece of a company where even the boss thinks it
will take two years to turn around.

If you want to buy for the long term, buying InterContinental Hotels may seem
like an inspired decision in three years time. However, there are certainly
going to be better punts available before then and we would therefore
maintain our stance of being careful with our money. Cautious hold.

Greggs

Our view: Buy

Share price: 400p (-11p)

More than six million shoppers, from builders to bankers, enjoy tucking into
their sausage rolls, pasties and sandwiches from Greggs each week. But the
bakery chain said yesterday that the recent wet weather had put some off
travelling down the high street to its outlets, contributing to a slight
decline in underlying sales for the final seven weeks of its first
half-year.

That said, Gregg’s like-for-like sales rose by 1.5 per cent over the 26 weeks
to 28 June, which the City interpreted as a robust performance, given that
it included a slight decline in food price inflation and was against tough
comparable sales last year. In fact, Greggs served up other tasty morsels
for investors to sink their teeth into. Its operating profit was slightly
ahead of City expectations ? up by 8.9 per cent to £16.3m, compared to £15m
in 2008.

The chain, which has 1,392 outlets, also boasted a 6.1 per cent uplift in its
interim dividend to a record 5.2p, marking 24 consecutive years of dividend
growth. Greggs said it was making good progress converting Bakers Oven shops
to the Greggs livery and that the standardisation of 80 per cent of its
product offer was on track.

Over the half-year, Greggs was cautious about capital expenditure which, at
£10.3m, was below the budgeted level for H1. Analysts believe shares in
Greggs, which trade at a forward 2009 price-to-earnings ration of 13, are
fairly priced, although yesterday’s update prompted some scribblers to
pencil in modest full-year pre-tax profit upgrades.

The baker’s stock has risen by nearly 20 per cent so far this year, but with
Greggs preparing to step up its store opening programme in 2010, they could
have further cause to rise whatever the weather. Buy.

NWF Group

Our view: Avoid for now

Share price: 105p (-8p)

Without any doubt, NWF is doing well. The Cheshire-based groceries, fuel and
animal feeds distributor issued record results yesterday, saying that its
profits, EPS, dividend and revenues all hit record levels in the year to the
end of May.

While the dividend is clearly a fillip, much of the good news is already
priced into the shares and yesterday’s 7.1 per cent fall indicates
profit-taking. Frankly, it would have been better to buy at the group’s last
update, when it said it expected to beat market expectations. The stock had
risen by 28 per cent over the past month, before yesterday’s update.

Even analysts at house broker Charles Stanley have slightly itchy feet. They
advise “add” rather than “buy”, saying the stock is
trading at a premium. While remaining “positive on medium-term
opportunities” for NWF, they say the downgrade is “in light of the
recent price rally”. Do not buy now, but keep the group in mind, it is
probably a long-term winner. Avoid for now.

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