Market Report: The bears check in to Intercontinental Hotels

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The Independent Online

Profit-seekers pressured Intercontinental Hotels last night, with a warning about the hospitality group's "racy" valuation offsetting a read-across from its US peer Marriott.

Marriott issued its quarterly numbers on Tuesday, comfortably beating analysts' expectations and raising its guidance against a backdrop of increased occupancy and room rates in North America. Although it is more exposed to the luxury end of the hotels market, Marriott's results would have been expected to lift the mood around Intercontinental. However, no such boost was forthcoming and Numis warned about the recent strength of IHG shares, lowering the stock from "hold" to "reduce".

"IHG has had a very strong run of late and the sector... now has a lot of good news in the price; it remains vulnerable to a double dip," the broker said. "While there are increasing signs that business conditions are improving, we believe the near-term upside is now factored in to a fairly racy multiple."

The comments provoked a round of profit-taking that drove IHG's share price down by 40p to 1,120p.

Overall, the market was lower. Stocks fell in early trading, but the buyers began to wade back following a pleasing earnings report from the US banking giant JP Morgan Chase. Underpinned by the read-across, the FTSE 100 mounted a comeback, but the gains were erased as Wall Street fell in response to some disappointing US economic data. As a result, the FTSE 100 closed down 42.23 points at 5,211.29 and the FTSE 250 shed 43.16 points to close at 9,852.45.

Though higher overall, net profits at JP Morgan's investment banking arm were lower, hitting Barclays, which was the weakest of the blue chips. The stock was 13.2p behind at 300.35p. In the wider sector, RBS closed down 1p at 45.2p and Moody's revised its financial strength outlook from "negative" to "stable". Lloyds failed to draw any steam from Deutsche Bank's words of support and ended 1.1p down at 61.9p.

In the wider financials sector, the London-based hedge fund group Man attracted bid talk. Speculators have been touting theories of takeover interest for the past week, though the chatter has so far failed to gain much traction. The rumours were back yesterday, with Bank of New York Mellon being named as a possible suitor. Despite the rumours, Man closed 3.6p lower at 215.5p.

The miners were broadly lower, with the sector failing to make much headway after new data showed that the pace of economic growth in China slowed to 10.3 per cent in the second quarter. Although anticipated, the figure aided the profit-taking trend which undermined leading stocks on Wednesday. Xstrata was among the weakest, easing by 20.5p to 922p, while Vedanta Resources lost 39p to 2,238p and Anglo American ended the day down 50.5p at 2,366p. Fresnillo was also held back, falling by 12p to 1,101p, despite it issuing what was seen as a second-quarter production report earlier in the week.

Elsewhere, the pharmaceuticals company GlaxoSmithKline was 21.5p stronger at 1,203p after US health experts voted to keep its diabetes pill Avandia on the market, albeit with new warnings about heart risks. The gains were capped, however, by news that GSK expected to book a £1.57bn legal charge for the second quarter after settling the "substantial majority" of claims relating to the drug.

Responding to the day's news, Collins Stewart reiterated its "buy" view, saying it was time for "an overdue" re-rating of the shares. Evolution was also positive, and said the removal of the Avandia overhang should pave the way for a period of outperformance.

Back on the downside, the telecoms group BT fell 2.5p to 139.8p as Deutsche Bank abandoned its "buy" stance. The broker moved the stock to "hold", telling clients it was time was for a breather following recent share price gains. It explained: "BT's management team remains focused on costs and are developing new growth opportunities but material progress beyond consensus expectations in the near term may be thwarted by government austerity plans, headwinds to cost cuts and competition." Deutsche scaled back its target for the stock from 180p to 175p.

Further afield, the emerging markets asset manager Ashmore, which booked strong gains after revealing an increase in assets under management (AuM) earlier in the week, was held back, retreating by 4.9p to 269p after Citigroup lowered the stock from "buy" to "hold". Though pleased with the rise in AuM, the broker said the valuation was looking full. Ashmore trades on a multiple of 12.7 times Citi's forecasts for 2011, against a peer group average of 10.5 times.

The data centres specialist Telecity featured in the market rumour mill last night, with speculators putting forward rumours of bid interest. The company was said to be in the sight of a bigger peer, though no names were mentioned. The suitor was said to be ready to pay a large premium, though again no range was mentioned.

The chatter boosted the stock, which touched a session higher of 418.9p, up nearly 6 per cent. At the close, it was 7.4p stronger at 403.3p. For its part, Telecity said it would not comment on market speculation.

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