Investments: US growth shows it is still worth checking in at InterContinental

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InterContinental

OUR VIEW: BUY

SHARE PRICE: 1,124P (+9P)

The US economy saw tepid growth in the second quarter, with analysts increasingly worried about the strength of the recovery. But this uncertain backdrop has not stopped InterContinental Hotels, the world's biggest hotelier, from powering ahead in the past nine months, with the US arm seeing strong demand.

It has registered growth in revenue per available room (revpar) – a key measure for the hotel industry – at all of its seven brands across the pond, including InterContinental, Crowne Plaza, Holiday Inn and Hotel Indigo. The group, which has more than 4,400 hotels in 100 countries, reported total revpar up by 8.1 per cent over the nine months to 30 September, a rate sustained in the last quarter of the period.

At its annual conference for hotel owners in the Americas region yesterday, IHG said: "The US industry experienced record levels of room demand in the third quarter as leisure travellers remained resilient through the summer and demand for business travellers remained strong."

Further goods news for conference attendees is that its Americas region delivered a similarly high level of revpar growth at 7.6 per cent over the nine months. At first glance, the results appear to be a vindication of the $1bn that IHG has invested in its Holiday Inn brand since 2007, as leisure and business customers have traded down to the middle market chain. However, while Holiday Inn grew by 7.2 per cent in the nine months, its more upmarket brands, InterContinental and Hotel Indigo, jumped by 11.1 per cent and a whopping 15.6 per cent over the period. Indeed, it was owing to the out performance of its US business, and its huge potential in fast-growing markets such as China and Russia, that we tipped IHG as a buy at 1298p in May before turmoil in the financial sector hit global stock markets.

Despite this, we believe that IHG – which trades on a forward earnings multiple of just over 8 – is still a buy and will rebound. Future investors should also note its shares are forecast to yield more than 6 per cent next year.

City of London

OUR VIEW: BUY

SHARE PRICE: 69.5P (+1.25P)

It is a good time to snap up a few shares in City of London Group (COLG). Originally a PR outfit, the group brought in Eric Anstee as chief executive a couple of years ago to set up investment businesses to fill gaps in the market.

Two of the platforms provide asset and trade finance to small and medium enterprises (SMEs), which Mr Anstee says are not getting what they need from the banks. Another lends to professionals such as dentists.

Then there is Therium, which provides financial backing for commercial litigation cases. Therium announced the results of two cases yesterday. One will reap gross profit of about £800,000 for COLG but the other, in which COLG invested £1.5m, will not produce much of a return.

Mr Anstee says the business is not for the faint-hearted but that returns are running at about 150 per cent of investment to date.

The company's shares haven't done too well this year, dropping 22 per cent and valuing COLG at less than £13m. But if Mr Anstee's fledgling businesses show their worth, there could be the chance to hitch a ride before others notice. Not for the faint-hearted but perhaps worth a small flutter.

Fuller, Smith & Turner

OUR VIEW: BUY

SHARE PRICE: 677.5P (UNCHANGED)

After failing to buy Capital Pub Company, Fuller, Smith & Turner yesterday announced the acquisition of five pubs from rival group Marston's in a £16m deal. Three of new additions to the Fuller estate are leasehold and two are freehold properties.

The fact that the pubs are in central London means that they fit into the company's trading area. And they present what could be lucrative opportunities. The analysts at Peel Hunt highlighted The Wellington, which has 26 bedrooms. Given its location near Waterloo station, it attracts high volumes.

Similarly, The Pavilion End is close to Cannon Street station. Fuller said it boasts "one of the best beer gardens in the City", something that should attract stressed City-types when the weather brightens up.

The Hand & Flower also looks like a great buy. It is opposite Olympia Exhibition Halls, which should keep bringing customers to its nine bedrooms. Together, the five new pubs take the total number of rooms in bedrooms in the Fullers estate to 612, boosting what is a growth area for the business.

All in all, the deal looks like a good one. It also represents a good use of the company's resources, with balance gearing of only 40 per cent, according to Peel Hunt. This, along with the positive full-year results over the summer, and the still affordable valuation multiples in the mid-teens, means that we would keep buying. The prospective dividend yield, at around 2 per cent, also supports the investment case.