No need to check into Hilton while there's too much room at the inn

Dairy Crest ready to come in from the cold; Glenmorangie looks set to mature well

Making a hotel reservation is not rocket science. Deciding whether to invest in a hotel company is infinitely harder.

Everything hinges on when signs of life will return to the corporate travel market – the bread and butter for hotel heavyweights like Hilton. Its chief executive, the respected David Michels, has already miscalled the recovery once and like his peers is hesitant to repeat the mistake.

On any long-term view, Hilton is a winner. The strength of its hotel brand is second to none, as is the quality of its four- and five-star estate. Investors like the stock, as a 9p rise yesterday to 169p despite a profit warning plainly showed.

The group's Ladbrokes betting division has been transformed from an also-ran into an odds-on favourite, for which Hilton has the Government to thank. The switch from betting duty to a tax on gross profits has prompted turnover to soar, while proposals to liberalise the gambling industry hold the key to future riches.

A trading update yesterday saw gross profits at its 2,000 Ladbrokes' shops rise by 15 per cent. In particular, the introduction of fixed-odds betting terminals (machines that bypass restrictions on amusement-with-prize machines, offering both unlimited jackpots to punters and better win margins to Hilton) looks inspired.

But the core hotels side is still struggling, which meant group profits fell by 9 per cent in the four months to end-October. Hilton is chasing leisure travellers to compensate for the lack of business guests, and that means charging less for rooms. Revenue per available room (revpar) – the key industry performance measure – is still falling in Hilton's crucial group-owned and fixed-lease properties (which comprise 80 per cent of its hotels portfolio). In some of the biggest German cities, it is 20 per cent lower than this time last year, despite having the fallout from 11 September in 2001.

Iraq may have agreed to let the UN weapons inspectors back but hotel stocks will continue to suffer until the threat of war recedes. Hilton may be a sound long-term bet but there is no rush to check in.

Dairy Crest ready to come in from the cold

Dairy Crest has gathered together a fridgeful of major food brands including Utterly Butterly, Clover, Cathedral City, Vitalite and Frijj, and looks a thoroughly appetising investment opportunity.

This column was unimpressed by the slimmed-down Uniq earlier this week; the fattened-up Dairy Crest looks a much richer prospect. The share prices of the two former milk giants have gone in opposite directions since Uniq sold its Unigate dairies business to Dairy Crest in July 2000 as it decided to move into convenience foods; Dairy Crest is concentrating on growing its brand-name dairy products and was even able to snap up the St Ivel spreads business from Uniq at the start of this month. This business will provide and immediate return on capital and will bolster cash generation.

Dairy Crest has spent a lot of money restructuring since the Unigate acquisition and now has some impressive giant dairy facilities. Most of the spending is now over and the group has achieved its targeted £25m of annual savings.

There are always things going wrong somewhere in the group, though. Yesterday's half-year results showed pre-tax profit in the six months to 30 September had halved to £6.6m. The biggest worry is the price fetched for unbranded cheese, which has collapsed because of oversupply of milk at the turn of the year. There is not exactly a cheese mountain, more of a cheese hump, but it is going to take longer to eat up than some had forecasted.

Cuts to forecasts brought Dairy Crest shares back 25p to 372.5p, but they don't change the underlying story, which is one of corporate turnaround and improvements to cash flows and dividends. Dairy products are always going to be tough, with supermarkets able to demand super-low prices from suppliers, but Dairy Crest's focus on brands makes a price-earnings ratio of 8 look too low.

Glenmorangie looks set to mature well

Glenmorangie, the Scottish whisky company, talked a lot about the long-term yesterday, as well it might because its products have to sit in a barrel for at least 10 years before hitting the shops.

Sales have been going well. The market for malt whiskies is growing everywhere apart from the US, where progress has stalled. Importantly, Glenmorangie's three brands – Glen Moray, Ardbeg and Glenmorangie itself – all appear to be winning market share.

This has given the company encouragement to boost advertising spending further; in the six months to 30 September it was up 20 per cent and the company is about to launch its first cinema advert. The uplift from this investment should be more immediate than that from the recent 33 per cent increase in capacity at its main distillery, which will only yield results in about 10 years. Meanwhile, spare capacity at the bottling plant outside Edinburgh is being sold to Drambuie through a joint venture.

A new distribution deal with Bacardi-Martini should also held improve sales in continental Europe "in the long term", the group said.

Interim profit before tax was £3.9m, up 12 per cent if a one-off gain from a disposal last year is ignored, on turnover up 10 per cent to £30.5m. Debt levels are heading back down and the group looks set for a strong full year, with its broker predicting a profit of £8.7m. That puts the main dividend-yielding shares, down 32.5p to 742.5p, on 17 times earnings. That rating looks toppy for a family controlled company whose share structure makes it takeover proof, but whisky-lovers may be tempted by the shareholder perks, and the stock is well worth holding for the long term.