Don't book into ICH just yet

Glenmorangie is a tipple too far for now; Time to take profits at Land Securities
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The Independent Online

Intercontinental Hotels is run by an accountant. When the group was spun out of the Six Continents conglomerate in April, the top job went to 6C's finance director, Richard North. He is very good on cutting costs, very good on the financial engineering of assets sales and franchise deals, and has certainly been a very safe pair of hands during a period when the hotel industry has been rocked by terrorism, war, and a slide in business travel.

Consumer debt and rising interest rates could yet mean slower leisure spending offsets any recovery in business travel, but ICH shares rose yesterday because of broadly positive trading news (recovery in the UK, weak in Europe, robust in Asia, stable in the US). Profits before tax were up 13 per cent to £93m in results for the three months to 30 September.

If a recovery gathers pace, Mr North's improvement in the organisational structure of the group should pay rich dividends. The emphasis on franchising out its hotels brands to local players will mean quicker and cheaper expansion, especially in the US. These brands include the mid-market Holiday Inn (which has probably grown about as far as it can) and Crowne Plaza, as well as names such as Staybridge Suites, which have potential.

Those who actually manage their hotels, though, will give away less of the upside when the recovery is in full swing, and ICH shares may not be the most attractive in the sector. Also, its incongruous Britvic drinks division has benefited from the best weather in years, but cannot be relied on to contribute to the same extent.

A price-earnings ratio of about 29 times for 2003, dropping below 20 in 2004, puts ICH at a discount to American hotels giants but at a premium to the UK-focused Hilton Group. With approximately 50 per cent of the its business Stateside and 20 per cent in each of the UK and mainland Europe, this relative valuation feels fair. Whether they are all too expensive is a different question and depends on the speed of what is still a shaky recovery. Wait and see.

Glenmorangie is a tipple too far for now

Paul Neep, the chief executive of the whisky distiller Glenmorangie, made the twice-yearly descent from his Scottish glen to present results to the City yesterday. Investors raised a glass and offered the usual "slainte mhath" for a job well done.

There has been progress establishing the company's Glenmorangie, Ardbeg and Glen Moray brands. An advertising push and the marketing deal with Brown-Forman, the owner of Jack Daniel's, are paying off with sales volumes up 9 per cent in the six months to September (though the value of sales grew more slowly as a result of fewer very old malts being available). An extended distribution deal with Bacardi-Martini is just kicking in.

Demand in the US has improved and Glenmorangie is winning market share in the UK, but France was disappointing, with a new police push against drink driving being blamed. In all, interim profits rose 12 per cent to £4.2m.

Worries for the future include a shortage of Ardbeg (whose distillery was mothballed by its previous owners, so there is little in the vaults), and a potential slowdown in consumer spending.

Shareholder perks will always make this stock attractive to the whisky connoisseur, and it has had a great run over the past three years. But, at 885p with a price-earnings ratio of 18, there seems little room for further gains. Put this one on ice for now.

Time to take profits at Land Securities

When we last wrote on Land Securities in May, we said it was a share for economic optimists only. Well, there has rightly been an increasing number of those since, and the shares have appreciated dramatically. The property company, half of whose investments are in shopping centres but which is also heavily exposed to the depressed central London office market, said yesterday that the value of its properties has risen 2 per cent in six months.

Two trends. First, rising business confidence is feeding through to demand for office space, which will improve rents and property values. Second, rising interest rates will most likely put the brakes on consumer spending, dampen demand for retail space and cut rents and values at shopping centres and retail parks. The first is well appreciated, fears over the second may start to weigh on the shares from here.

The supposedly revolutionary move into "total property outsourcing" - where its Trillium division takes over the management of property portfolios and maintenance for large corporations, such as the BBC, or the public sector - continues to make glacial progress, but progress none the less. Existing clients are passing more work to Trillium and it remains to be seen what profit margins here will end up being.

At 972.5p, the shares now trade at an above-average discount to net assets and look to have run too far. Avoid.

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