Investment Column: IHG still has room to grow as US picks up

Johnston Press; Hansard Global
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The Independent Online

Our view: Buy

Share price: 1,298p (+49p)

InterContinental Hotels was the toast of investors yesterday after it delivered a buoyant performance in the US, which accounts for about two-thirds of its profits.

In fact, the 4,400-plus hotels group, which operates the Holiday Inn and Crowne Plaza brands, boasted revenue per available room, or revpar, growth of 8.4 per cent in the US over the quarter to 31 March, boosted by the continuing return of business travellers. This was its best result in the US since the second quarter of 2006 and helped IHG to post global revpar, a key performance measure in the hotel sector, higher by 6.9 per cent.

The group also touted an 18.8 per cent surge in revpar in Greater China, which helped its Asia Pacific division to deliver growth of 9.9 per cent. In fact, IHG expects "strong" trading in this region and the Americas to offset a hit to its full-year operating profit of as much as $20m (£12m) from the unrest in the Middle East and the disasters in Japan and New Zealand this year.

For the quarter just ended, IHG, which also operates the Intercontinental Hotels & Resorts brand, registered a 35 per cent rise in operating profits to $112m. Total revenues jumped by 9 per cent to $396m over the period, although its revpar performance in Europe was more subdued.

In addition to a steady economic recovery in many markets, IHG is benefiting from the strategy put in place by chief executive Andy Cosslett, who hands over the reins to Richard Solomons at the end of June. Alongside streamlining a highly federated series of national businesses into a centralised group, he sanctioned the $1bn investment in the relaunch of its Holiday Inn chain over four years.

It is a strategy that investors have liked, and IHG has surged since last summer. However, this means its shares are now less of a bargain. Still, the gains in the US and exposure to Asia mean that we are happy to keep backing this horse.

Johnston Press

Our view: Sell

Share price: 7.55p (-0.39p)

It has been no secret that the regional press has been in the doldrums since the financial crash, and that despite its best efforts to battle the tide, the waters continue to lap around Johnston Press.

Yesterday, the group published its interim management statement for the 18 weeks to 17 May. The results showed more bad news for its total advertising revenues, which fell by just over a tenth. Johnston was particularly hit by the slump in recruitment advertising, as public-sector cuts saw revenues in that category fall 30.7 per cent over a year earlier.

There was a silver lining as the decline had slowed to 7.8 per cent in the first five weeks of the second quarter. Display advertising also performed better, down 7.9 per cent in the first quarter rising to growth of 5.5 per cent in the second quarter so far, although this is mainly down to the timing of Easter. Moreover, to make things worse, newsprint prices in 2011 will be "significantly higher".

On the upside, management has clearly kept a tight control on costs, and will benefit from lower interest payments. And although the stock is only on 2.2 times forward earnings, this is too risky a bet, and concerns over the debt continue to weigh in some quarters.

Hansard Global

Our view: Buy

Share price: 163.75p (-1.25p)

Hansard Global, the seller of long-term savings products, turned in a solid trading performance yesterday.

Though IFRS profit after tax for the first nine months of its financial year fell 4 per cent to £12.9m, this was due to increased investment already flagged up. More pertinently, new business premiums were up 37 per cent to £162.1m and margins widened.

Hansard sells unit-linked life assurance products through independent financial advisers in Latin America and Asia. The shares trade at a 14 per cent discount to broker Panmure Gordon's estimated 2011 embedded value of 191p a share.

Some of this shortfall is probably due to Hansard being lumped in with UK peers that face stricter regulation under the Retail Distribution Review. There may also be an overhang on the price because founder and chairman Leonard Polonsky still owns 40 per cent of the shares, which could be sold off at some point. But with its healthy cash generation, chunky 8 per cent dividend yield and presence in growth markets, we think the market is being to harsh and the shares merit a higher rating.