Hold on to M&C in hope of better times ahead

You can't expect a company to keep paying dividends out of reserves, so after three tumultuous years - through a business slowdown, the 11 September terror attacks and ongoing airline security fears, through war and Far Eastern pestilence - Millennium & Copthorne Hotels cut its dividend by a half yesterday. The shares soared 7 per cent.

You can't expect a company to keep paying dividends out of reserves, so after three tumultuous years - through a business slowdown, the 11 September terror attacks and ongoing airline security fears, through war and Far Eastern pestilence - Millennium & Copthorne Hotels cut its dividend by a half yesterday. The shares soared 7 per cent.

The message was that it is upwards and onwards from here. The hotels group, which runs 91 sleeperies across the globe, turned its first ever half-year loss into a full-year profit of £18.7m (compared with £60.2m in 2002) and said the recovery in occupancies accelerated in the last few months of the year. There has been a particularly strong start to 2004 at its Asian hotels, it said. For the time being, though, room rates remain depressed.

M&C shocked the market last month with news that both the chief executive and finance director are to leave, and the company is now in the day-to-day control of its chairman, Kwek Leng Beng. He promises a root and branch review of strategy, but that seems to mean a bit of operational twiddling and a few disposals or acquisitions, rather than anything dramatic to realise some of the company's 515p-a-share asset value.

With shares ending at 303p yesterday, the discount to assets looks too steep, but counter to that is the very high level at which the shares trade relative to likely earnings this year - anything from 24 to 35 times, depending on whose forecasts you take. With a global economic recovery taking hold, it is not unreasonable to hope the earnings forecasts are too low, but this is a hold, not a buy.