Investment Column: Don't overstay your welcome with IHG

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Our view: Cautious hold

Share price: 728p (-30p)

On the face of it, investors should not touch InterContinental Hotels with a barge pole.

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.


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.