GG now spends rainy days trading equities and currencies. He likes to use a combination of technical analysis and news flow to make trading decisions.
Irish Life & Permanent and HBOS
First up, don’t forget that the UK largest housbuilder Persimmon reports numbers tomorrow (Tuesday). Key numbers to look out for are in the preceeding blog.
Irish Life & Permanent is due to report numbers on Wednesday. The shares have been the worst performing of the major Irish financial companies, falling by over 50% over the last year as concerns grew about the company’s exposure to the Irish residential property market and as the cost of wholesale funding increased. After a trading update in December, forecasts centre on an increase of about 13% to about €600m pre-tax and a 10% hike in the dividend.
However, the outlook for 2008 is much less rosy.
IL&P is the most exposed of the quoted Irish stocks to movements in the cost of wholesale funding-the problem which has impacted UK financial institutions. Northern Rock was the biggest casualty, but both Alliance & Leicester and Bradford & Bingley have been adversely affected by increased funding costs. IL&P’s earnings are pretty sensitive to shifts in funding spreads; a 0.25% shift impacts operating profits by about 10%.
IL&P is fully funded for 2008, using just €4bn of a €20bn ECB facility, which should give investors a degree of comfort. The UK mortgage business, Capital Home Loans has delivered strong growth over recent years from the buy-to-let market. However, as Bradford & Bingley indicated last week this part of the market has become more difficult over H2 of 2007. IL&P also has a 30% share in Allianz Ireland-the general insurer where rates remain under downward pressure.
The company’s ‘jewel in the crown’ remains its Life business which accounts for about 60% of profits and has a market share approaching 30%. Demographic trends in Ireland are extremely favourable, which is why IL&P is often touted as a potential takeover target. If the stock remains lowly rated it wouldn’t be surprising to see ‘expressions of interest’ forthcoming from a number of sources.
The focus continues on the UK banks’ reporting season with HBOS also under scrutiny on Wednesday.
HBOS is the UK’s largest mortgage lender, so comments here will give valuable insight into the current state and future prospects for the UK housing market. Arrears/repossession figures and bad debt provisions will draw particular attention, as will the overall net margin. The UK retail business is also likely to have found conditions ‘challenging’, however the group is likely to have made good progress with its corporate banking business. HBOS has already announced a hit of £180m on exposure to US sub-prime; analysts will be anxious to see how much additional impairment is to be taken.
Overall, annual profits are expected to be modestly higher at about £5.76bn with a dividend of about 48p.
On a busy day keep an eye out for trading statements due from amongst others: bookmaker William Hill, (will be interesting to see how much has changed since my first blog back in January) UK housebuilder Barratt Developments and insurer Royal and Sun Alliance. There is also a strategy presentation from BP.
February 27th, 2008 at 4:36 pm
IL&P produced results much in line with estimates @ €590m.
However the comment that 2008 would be ‘challenging’ offset guidance that suggested an outcome for 2008 that was likely to be slightly better than first envisaged, due primarily to slightly lower funding costs.
Company wasn’t helped by some poor figures from UK bank HBOS which came in right at the bottom end of the range. More on them in a mo.
IL&P currently down about 50 cents, negating much of yesterday’s rise.
HBOS failed to cover itself in glory, despite a hefty increase in its dividend.
The shares fell by over 10% before staging a modest recovery. Again a cautious outlook statement didn’t help, but investors were more concerned by the anticipated slowdown in corporate lending which was expected to be a ‘jewel in the crown’ and by lower margins in the consumer division which was hit by competitive mortgage conditions in H1 2007, and the higher cost of wholesale funding in H2 2007 (see also IL&P pre-results comment).
As a more general comment, it appears that UK mortgage banks (A&L, B&B, HBOS) have all done pretty poorly, whilst the larger banks with more diverse sources of funding and profit (Lloyds & Barclays) or those with secular growth opportunites (Standard Chartered’s exposure to the developing economies of Mid-East and Asia) have done pretty well.
Don’t forget that RBS has results tomorrow!