City File: Bank on London Scottish

IT MIGHT not be glamorous, but London Scottish Bank is one of the few stocks that looks set to turn in consistent earnings growth. Its debt collection business kept earnings growing in the recession, and now lending is picking up, too.

As people become more confident about their finances, loans of around pounds 400 - for a foreign holiday or a washing machine - are becoming popular again.

Last week the bank pleased the market with a 28 per cent increase in earnings and a 16.5 per cent rise in the dividend for the half-year to 26 April.

When the report and accounts were published, lending was up 17 per cent on the year and debt collection 18 per cent; but last week they were both up 24 per cent.

Smith New Court is confidently forecasting sustained growth of more than 20 per cent in earnings and dividends.

AVON RUBBER shares have fallen back from 627p to 584p since we recommended them last month. But as our chart shows, they are still on the upward path that began in earnest at the New Year.

Richard Marshall at Investment Research of Cambridge warns that the price could yet come back as far as 540p and still stay within the bullish trend. But he believes the shares will challenge 750p within a year.

The evidence for this optimism lies in the sharp recovery in new-car sales and signs that the continental recession is fading. The company beat our forecast of pounds 6m profits for the half-year to April, and Kleinwort Benson reckons they should go from pounds 11m to as much as pounds 15m for the year, where the earnings multiple will be 16.

Holders should buy on any temporary weakness, to lower their average price.

WHILE the financial climate may be less favourable than it was last year, and the outlook for securities houses less prosperous, the depths that Smith New Court's share price has sunk to are less than justified. At 379p on Friday's close, the shares are on a multiple of about 5.5 times the 70.2p earnings per share announced last week. That contrasts with a historic price earnings ratio of 18.7 for the FT All-Share Index.

Investment banks and securities houses have seen their share prices fall sharply since February, when bond and share prices started to retreat, volumes got thinner, and economic uncertainty crept in. Yet Michael Marks, chief executive, says in the forthcoming annual report that profitability was unaffected by the downbeat conditions in the last three months of Smith New Court's financial year, which ended on 29 April. He adds that beneficial trends that drove profits last year - such as US buying of international equities and international privatisation issues - continue.

Even if SNC does not quite manage to match last year's pounds 95.2m profit this year, the stock is cheap.

WHO EVER said that the market was logical? The platinum- to-pigments group Johnson Matthey has seen its share price slide to 527p, despite a strong performance last year. Nearly two weeks ago David Davies, chairman, announced a 14 per cent increase in operating profits, to pounds 81.7m, although a pounds 7m provision slightly dimmed the burnish. Yet it's all a far cry from the days, four years ago, when Johnson Matthey was heavily dependent on precious metals and in a truly terrible mess.

Under Davies, the group has developed its materials technology and auto-catalyst divisions. It has also just completed a run of joint ventures to bolster market share in its key areas. It has a thriving electronics venture with Mitsubishi in Japan, the world's first auto- catalyst operation in Malaysia and plans for amalagamating its ceramics business with Cookson. In short, Johnson Matthey is now well positioned for growth.

Speculation that a rights issue was imminent caused a recent drop in the share price. Davies denies any issue plans, so now is a good time to buy the stock.

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