Banking results so far suggest that Lloyds (LLOY) is as good a prospect as any in the sector, and that the recent heavy fall in the shares price was grossly overdone. As a shareholder, I was more than a little relieved at the way they have bounced back.
I’m not suggesting that figures for 2015 were particularly sparkling but they were at least satisfactory. Coming after disappointing figures from HSBC (HSBA) - where underlying profits were down 7% - and a worrying statement from Standard Chartered (STAN), which produced its first annual loss in 25 years, that was a bit of a relief.
Underlying profits at Lloyds were up 5% and costs were lower, which is going in the right direction. It is true that the dreaded Payment Protection Insurance (PPI) continues to rear its head but I suspect that some of the provisions already taken will be written back one day, especially if, as I expect, a time limit on claims is imposed.
The final dividend of 1.5p is boosted by a special payment of 0.5p. Small shareholders like me will not get rich quickly but the progressive dividend policy is intact and is unlikely to be abandoned any time soon.
It is true that the government’s 9% remaining stake still overhangs the market, especially as Chancellor George Osborne remains committed to a retail offer at a discount to the market price. Since the sale will generate a profit for the government at over 73p, that may put a limit of about 75p on the shares for the time being. Why pay more than that when there is the prospect of getting them cheaper?
At 70p the yield is a touch under 4%. With the promise of more in the coming years, that looks attractive.
Royal Bank Continues to Disappoint
Royal Bank of Scotland (RBS) claims it “continues to deliver on its plan to build a strong, simple and fair bank for both customers and shareholders” but that cannot disguise another thumping loss, albeit reduced from £2.5 billion to a touch under £2 billion.
Apparently the bank’s repositioning accelerated as further steps were taken’ ‘to clear legacy obstacles from the path to normalisation’. Their words, not mine. Whatever that means, it cost a total of £5 billion.
RBS remains in my view the worst investment in the sector. There is no reasonable prospect of the government reducing the taxpayers’ stake in the near future except at a stonking loss that would bomb the shares, which are already at their lowest level since September 2012. They briefly topped 400p this time last year. The mystery is why some eternal optimists thought it was worth pushing them higher the day before the results. What on earth were these people expecting?
Barclays (BARC) rounds up the biggies on Tuesday. I expect something similar to Lloyds, showing steady progress rather than a big leap forward. If so, it will remain my alternative choice.
Home is Where the Heart is
Investors may remember the boom years for housebuilders in the years running up to, and just beyond, the millennium, when doomsayers repeatedly predicted the bursting of the bubble that eventually came in 2008. If you keep saying the same thing over and over again you are likely to be proved right one day but those who invested regardless made an awful lot of money in the meantime.
The same arguments about the housing bubble are cropping up again but housebuilders go from strength to strength. The basic factor, that there is more demand than supply, still applies but even more so now.
Bovis Homes (BVS) Galliford Try (GFRD) Persimmon (PSN) and Barratt Developments (BDEV) all confirmed this week that the housing boom goes on. Where shares in the sector have come off the top it presents a chance to top up.
