Investment Column: Time to check in to Intercontinental Hotels

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The Independent Online

Intercontinental Hotels

Our view: Buy

Share price: 1,208p (-7p)

Intercontinental Hotels, which yesterday relaunched its 2,500th Holiday Inn hotel, has had what can only be described as an excellent run of late.

The shares are up about 18 per cent since 25 May, and are more than 30 per cent ahead of the levels seen at the beginning of the year. Recent gains have been pinned on positive feedback from an analyst and investor outing in New York.

The two-day event, which took place earlier this month, prompted positive broker comment, with the City gushing about the combination of the company's upbeat tone and recent industry news, which together point to the prospect of improving revenues as the recovery kicks in.

In addition to better market conditions, IHG stands to benefit from the $1bn (£673m) relaunch of the Holiday Inn brand – the biggest overhaul programme in the history of the hospitality industry. The drive, which involves improvements to signage, reception desks and the like across more 3,300 Holiday Inn and Holiday Inns Express hotels worldwide, is already paying off – returning from the recent company event, JP Morgan Cazenove said a sample of 290 rebranded hotels showed that, in terms of revenues per available room, they had outperformed those that had not yet been relaunched by 6 per cent. This augurs well for IHG's performance in 2011, and should supply it with ammunition to steal a march on its peers.

Clearly, there is much to recommend this company. The investment case hinges on how far this (good) story is reflected in the shares. IHG trades on a multiple of 16.7 times JP Morgan's forecasts for 2011.

In terms of enterprise value to earnings before interest, tax, depreciation and amortisation, it's on a multiple of 10 times and has an adjusted free cash-flow yield of 5.7 per cent. These metrics leave it on a 14 per cent discount to American peers, which is promising. Buy.

Domino Printing Sciences

Our view: Buy

Share price: 461.6p (-3.4p)

Like journalists, investors are treated to lots of, shall we call it "disinformation", from companies hoping to spin a line. The good investor, like the good reporter, will see through the guff and concentrate on the important matters.

As far as Domino Printing Sciences, the industrial printer, is concerned, the one thing that those considering buying the shares will turn to first is yesterday's announcement that the interim dividend was being increased by 20 per cent, while the group also reported a 65 per cent hike in pre-tax profits.

Indeed, long-term backers of Domino have seen 20 per cent dividend increases for about the past six years, with the exception of 12 months ago, when despite widespread reports of impending financial armageddon, Domino put up investor payments by 10 per cent.

Nigel Bond, Domino's managing director, points to growing operations in the world's engine rooms of Asia and Latin America, and says that while the UK and the eurozone struggle, so more of Domino's business will be going to the developing world.

For investors, the 100 per cent plus of share price increases has put the stock at rather pricey levels, a point that is best exemplified by the fact that the shares fell modestly yesterday. On valuation alone, we would consider Domino too expensive.

But it is the dividend that makes the group attractive to new investors. We would be buyers of Domino, and while we do not necessarily expect to see great increases in the share price over the coming months, backers can expect similar dividend increases next year. Buy.


Our view: Buy

Share price: 118p (unchanged)

Kewill provides services to businesses that need help streamlining their supply chains. The group sells software that simplifies logistics management, from sourcing to compliance and finance issues.

It announced prelims yesterday which showed a slight rise in revenues, up 6 per cent to £56.3m, of which 62 per cent were recurring. At the same time operating profit rose 30 per cent to £2.6m. The dividend was also increased 10 per cent to 1.1p a share.

The company has new products, has targeted new regions and continued to win contracts. It thinks that as legislation becomes more demanding, its systems will become more crucial, and a return of international trade will help.

The investment case is complicated by a bid, after it was approached in May with a deal worth 130p a share. It is worth picking, however, even though the price is likely to fall in the short term if the talks break down. Buy.