The Investment Column: A&L has little to attract the smarter investor
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Your support makes all the difference.Will someone please take -over Alliance & Leicester, if only to put an end to speculation that has become almost as predictable as the group's results.
The UK's seventh biggest bank yesterday unveiled a tidy profit of £548m, up from £540m a year ago, and managed to increase the dividend a creditable 7 per cent, to 51.5p. But as far as the shares go, there seems little there to attract the smarter investor the company used to go on about in those televisions ads.
The bid gossip surrounding Alliance & Leicester has been around for nearly as long as Fry & Laurie. Management pretend to find it an irritation, but in reality it keeps the shares higher than they otherwise would be.
The scare factor for banks is always bad debts - loans made to people who don't pay back. Losses from bad debts went from £46m to £74m, largely from loans that aren't tied to a house.
A&L certainly isn't taking any risks on the home loan front, with a mere 0.64 per cent of mortgage accounts in arrears, lower than the industry average.
One side-effect of this, however, is that revenue for last year was basically flat, at £1.38bn. For profit growth, A&L has to cut costs, and it can't be long before it runs out of things to chop (you can assume the chief executive's salary is safe).
The bank admits that margins will continue to fall, another bad sign for future profits. Perhaps in response to this, management said yesterday they were looking at a share buy-back programme to keep investors happy.
As part of the continued cost-cutting drive, 350 staff will be offered voluntary redundancy this year.
The City showed signs yesterday of getting tired of waiting for the takeover bid that never comes, with the shares one of the day's worst performers, off 13.5p at 1,125p. They still look over-priced at almost 14 times forecast earnings. Sell.
Hardman
Over the weekend the Chinguetti field offshore Mauritania started to produce oil for the first time. The news represents a significant milestone for Hardman Resources as it takes the group from being a resource explorer (one of probably over a hundred listed on the junior market) to membership of the select club who actually produce oil.
The Australian company started life hunting for gold and diamonds, but has more recently focused on oil and gas exploration. It fact, it was Hardman which identified the potential of the Chinguetti field and invited Premier Oil and Woodside Petroleum to become partners in the 120m barrel project, where it now has a 19 per cent stake.
The success of Chinguetti makes Hardman an altogether less risky investment proposition. It underpins the company's valuation, but it in no way reduces the possible upside in the stock from other exploration successes. Hardman has a similar-sized stake in the undeveloped Tiof field - which is again offshore Mauritania, and believed to be significantly bigger than Chinguetti - along with interests in Uganda and French Guiana.
Hardman shares have in broad terms tracked the oil price since the company listed in 2002, and they are likely to come under pressure if it suffers a strong retreat. However, for any investor keen on exposure to oil exploration and production, Hardman should be a core holding.
Robert Walters
2006 looks set to be another great year for Robert Walters. Yesterday's results from the recruitment group showed that it is enjoying buoyant trading conditions across the board. The full-year figures saw the company register a 57 per cent rise in pre-tax profits to £12.7m (which easily beat analyst forecasts) and a 12 per cent rise in the dividend, to 3.4p per share.
One of the company's biggest attractions is its exposure to the fast-growing economies of the Asia Pacific. It gets a third of its revenues from this part of the world, which is now the company's most profitable region, and is likely to expand by opening offices in China and Malaysia. A move into India is also a possibility at a later stage.
By the end of the current year, analysts expect Robert Walters' profits to hit £15m. In the meantime, the group is likely to continue with its share buyback programme. The stock trades at 15 times forward earnings, which is not expensive given the group's growth prospects. Buy.
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