Hotels still have room: Shares in the sector may see early gains from any recovery, writes Derek Pain

HOTEL shares have become one of the stock market's poor relations. Once toasted and accorded glamour ratings, they suffered a dramatic decline as the chill winds of recession whistled through hotel corridors, leaving Britain's army of receivers in reluctant charge of many properties.

Their fall has been accentuated by one of those abrupt changes of attitude which often mystify investors.

Nowadays it is fashionable to fret about hotel accounting, the need for cash and the industry's heavy borrowings.

Last year hotel shares were so bombed out that only the brave ventured forth. Shrewd speculators decided the market had over-reacted and bargains were waiting to be snatched.

They were right. Forte, at one time down to 112p, is now 200p and Queens Moat Houses is 44.5p against 26p.

I suspect most of the speculators have already taken profits. The question is: have they left anything for the longer-term player without the time or inclination to jump in and out?

An old market trick, which often produces rewards, is to bet against the crowd. And I believe that for the patient investor, hotels are attractive.

The industry will be a prime beneficiary of any economic recovery and, after cutting overheads, is fitter than it was in the heady days of City adoration.

Paradoxically a dividend cut next month by the industry leader, Forte, will not harm sentiment. Despite a profits slump it has resolutely maintained its uncovered dividend.

A reduction could be seen as a clear message that recent changes have not been cosmetic and the group is adopting a realistic approach.

Friendly Hotels and Resort Hotels are worth attention; so, perhaps, is a quoted tiddler - Regal Hotels.

Rescued from the corporate graveyard, it is intent on buying hotels from receivers, using its shares as currency. It costs 1.25p a share to check in - only one for the brave.

Quentin Lumsden is unwell.