Compared with vaguely positive comments from one or two of its rivals, yesterday’s third-quarter trading update from InterContinental Hotels Group (IHG) looked rather downbeat. While acknowledging that occupancy was starting to stabilise, the owner of Crowne Plaza and Holiday Inn said that room rates were “still under considerable pressure across the board”. Third-quarter numbers beat consensus forecasts but the tone of the comments sent the shares down 17½p to 825p.

In reality, IHG was not saying anything too different. More bullish operators are concentrated in a much smaller number of markets, some of which are trading more robustly, but IHG’s spread of hotels — almost 4,400 properties with more than 640,000 rooms in 100-plus countries — gives a far more accurate picture of the sector’s fortunes.

The group’s third-quarter numbers — turnover and operating profits both down 19 per cent and revenue per available room down 15.2 per cent — lend credence to the status of hotels as a lag industry. It may be more resilient in the early stages of an economic downturn but corporate spending, in particular, is late to recover as the recession starts to ease. So, while individual consumers are taking advantage of deals to snap up leisure breaks, the squeeze on expense accounts and corporate events remains in place and there is unlikely to be much loosening of the purse strings when many annual contracts are renewed in the new year. The pipeline of new management contracts and franchises has also suffered as developers and owners have found it difficult to raise funding for projects (although IHG is still signing one new hotel a day).

So much for things outside its control. Of those it can, IHG is performing pretty strongly, cutting central costs by $80 million this year while still investing in the relaunch of Holiday Inn, where the initial signs are positive. The economic picture remains hard to call but IHG’s strong brands and US exposure should enable it to prosper when a recovery ensues.

Despite a full-looking multiple of 18 times 2010 earnings, hold on.

Babcock International

Yesterday’s 4 per cent fall in Babcock International should not disconcert. Shares in the engineering services group have risen by nearly one third since September, making it one of the few FTSE 250 companies whose price is now higher than when the credit crunch began.

True, Babcock’s first-half numbers were not blemish-free. Lower discount rates have pushed its pension fund from a £51 million surplus to a £287 million deficit. Also, the company’s persistently poor rail division has suffered from the loss of a five-year track renewal deal with Network Rail, prompting the company to put the business’s future up for review.

But Babcock as a whole continues to perform: pre-tax profits up 24 per cent, operating margins rising to a record 8.9 per cent and the interim dividend increased 20 per cent. At £6 billion, its order book also remains at a record high.

The company’s wider appeal is a top-three position in each of its biggest markets (marine, defence and nuclear) and its provision of highly skilled services on which spending could be considered non-discretionary. Its position as the biggest civil contractor to the Royal Navy means that Britain’s nuclear submarine fleet could not put to sea without it. That is not to say that the strategic defence review that is likely to follow the next election does not carry risks. The short-term comfort must be that Babcock’s biggest new-build project, the Queen Elizabeth class aircraft carriers under construction at Rosyth, is now past the point of no return.

September’s £38 million purchase of UKAEA, the atomic energy contractor, also strengthens Babcock’s postion in “new nuclear”, not only at home but also in Eastern Europe and the United Arab Emirates, which have ambitious development programmes. With worldwide demand for nuclear skills far outstripping supply, that niche should become steadily more valuable. At 619½p, or 13 times current-year earnings, hold on.

Schroders

Seven billion pounds is a sizeable sum — the stock market value, say, of a Wm Morrison or a WPP. But that is also the amount of new money pulled in by Schroders in the three months to September 30. That performance makes it comfortably the FTSE 100 fund manager’s strongest quarter of recent times and provides the second consecutive advance after the £3.9 billion of fund inflows notched up in the three months to June 30.

With nearly half of Schroders’s £139 billion of assets under management skewed towards equities, it might come as no surprise to find it prospering after the stock market’s best quarterly run in 25 years. But the company is also reaping the rewards of several years of restructuring. It is not that the steady shift of cash out of balanced institutional mandates — running a spread of funds for pension fund clients — has suddenly reversed. Rather, Schroders’s move into faster growing areas, particularly corporate bond and continental European funds, has outweighed the former’s importance. About 70 per cent of revenues now come from outside the UK. Schroders’s recent fund outperformance is helping it to attract new clients (80 per cent of its assets under management are beating their benchmark), while cost cutting has pushed operating margins above 30 per cent.

Schroders’s private banking operations (which are hampered by the low returns available from cash on deposit) are exerting a drag and provisions for asset impairments (a further £9 million were disclosed yesterday) continue to flow through.

But at £11.70, or 14 times 2010 earnings, it is not too late to buy.

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