InterContinental Hotels
4.3% LFL rise in room numbers
Businesses such as InterContinental Hotels should be good indicators of economic activity because they rely heavily on the business traveller and more activity means more business trips. The third-quarter figures suggest some slackening of growth in the Americas and a slowdown in China, but the company is not convinced that either reflects those macro-economic trends.
Revenue per available room, the main metric, was up 4.3 per cent in the Americas, below the increase in both the previous quarters. IHG’s hotels there are as full as they reasonably can be, helped by a shortage of rooms coming on to the market.
In China, demand in the big cities remains strong, but in secondary and tertiary locations too much supply is on the market to allow any rise in room rates. Britain was strong, with revpar up 5 per cent, while some southern European countries benefited from the weak euro.
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IHG operates an asset-light model, unlike many of its rivals, and has just come to the end of a disposal programme, selling assets worth about $8 billion, including two in Paris and Hong Kong, the latest, that raised more than $1.2 billion. The cash has been handed back to investors and the method of returning that latest wodge will be announced with 2015 figures in February. The only thing that could derail it is a big acquisition. IHG has been linked with Fairmont Raffles, which would bring with it trophy hotels at a cost of perhaps £2 billion. This looks implausible and IHG is apparently not even on the shortlist for the sale. It has rooms in its pipeline equivalent to about 30 per cent of the existing estate, taking as much as five years to come through, and this rate of organic growth would seem to preclude any huge purchase at a premium price.
IHG has, however, in the past year paid $430 million for Kimpton, an American chain of boutique hotels that would have been difficult to create from scratch.
The shares were among the strongest gainers yesterday, rising 160p to £24.71. They sell on almost 21 times’ this year’s earnings, though if I was an investor I would stick around for February’s developments. I see no reason to buy now.
My advice Avoid for now
Why The company is about to return $1.2 billion or more to investors, but this is in the share price and is reflected by the high earnings multiple
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Informa
6.9% Rise in nine-month revenues
By the end of this year, the reshaping of Informa under Lord Carter of Barnes should be about 90 per cent complete.
The former media regulator has instituted one of those grandiose-sounding change programmes, but effectively this means getting out of areas where Informa is not big enough and trying to refocus it on more reliable revenues, such as subscriptions.
There are three main levers: beef up exhibitions, with a small American business bought yesterday; exit smaller conferences; and turn round the serially underperforming business intelligence side, which has been losing revenues at a rate of 7 per cent to 9 per cent for each of the past five years. There are signs in the third-quarter figures that this decline is tailing off and that the business should be back to market level growth by the end of next year.
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All of the above will be reflected in enhanced earnings in due course, but for investors the shares present a dilemma. One of my picks for the year, they have shot ahead from 465½p, adding 4p to 586½p after the reassuring update. I like the shares in the long term, but there is nothing wrong with taking a bit of a profit.
My advice Take profits
Why Shares have had a good run this year
Brooks Macdonald
£7.33bn Funds under management
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If two senior executives at an asset manager decide to sell between them more than 5 per cent of the share capital, therefore implicitly taking a view on the current price, the market is likely to take it badly.
Brooks Macdonald has been the fastest-growing of the quoted private wealth managers, increasing assets organically by 23 per cent over the past five years. This had been reflected in the share price. When two directors, including Chris Macdonald, the chief executive, decided to sell at the end of last month, the shares had doubled over that five-year period. They have come back a bit since, off 1p at £17.29 after a confident enough trading statement.
The two had their reasons to sell, one assumes, and management and senior staff hold 30 per cent of the company. That growth has been achieved by building relationships with financial advisers, more than 700 now who are encouraged to use Brooks Macdonald to invest their clients’ money.
The third quarter inevitably was difficult, but the company beat City expectations for assets under management, £180 million of new business countered by a negative market performance of £263 million. Several smaller businesses are still sub-scale and act on a drag on margins, as is £4 million being spent upgrading IT systems. Margins across the group of 20 per cent or so, then, can rise only to a more typical 30 per cent in due course.
Although an earnings multiple of 17.7 is not cheap, that expansion and margin improvement are the main reason for holding the shares.
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My advice Buy long term
Why Good prospects for funds and margin growth
And finally . . .
Investors in Genel Energy have learnt the need for a long-term view. The company is now being paid by the authorities in Kurdish Iraq for the oil extracted from its two wells there, one payment confirmed and one imminent, but Genel is having to manage down expectations of production and revenues for this year because of constraints on investment. The third quarter was, indeed, as the company said, a turning point and next year should see more regular payments, but the shares lost another 5.7 per cent on the news.
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