The Investment Column: RBS continues to punch its weight - at a discount

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The Independent Online

Our view: Buy

Share price: 1,720p (-52p)

With stock markets losing their footing, the stampede of investors searching for a safe haven may do worse than head north of the border.

Unloved by the City for so long, penalised until recently for the reluctance of its domineering chief executive Sir Fred Goodwin to return surplus cash to shareholders, Royal Bank of Scotland has gone about its business efficiently and effectively.

Its (largely unappreciated) reliability was again in evidence yesterday, when Britain's second-biggest lender updated on trading in the first half of its year. Income from corporate banking, an arena in which RBS punches hard, is growing nicely.

The Edinburgh-based bank is also doing well in Ireland, costs remain around the lowest in the sector and credit quality - the amount of borrowers struggling to make repayments - generally is good.

Sir Fred, keen now to make the right noises to the investment community, repeated the mantra that no big foreign takeovers are on his horizon and even alluded to a possible second return of capital to shareholders at the end of the year.

Some banking experts were reaching for pens to lift profits forecasts for the full year even as Sir Fred said he was quite happy with current targets.

True to form, RBS shares fell 52p to 1,720p, albeit on a dreadful day for the wider market. They are now trading at about 9.1 times this year's expected earnings and just 8.3 times forecasted earnings for 2007.

That puts them at discount to all British rivals, and across Europe only Deutsche Bank and Crédit Agricole shares are cheaper. Unfavourable exchange rates will hurt RBS's American earnings when converted to sterling at the end of the year; retail banking and insurance are subdued. But investors have in RBS a steady, well-run company delivering as expected in trying times. The shares are still cheap. Buy.


Our view: Hold

Share price: 358p (-17p)

Profits at Helphire, which provides replacement cars for those unfortunate enough to be caught up in an accident, continue to motor. Yesterday, it said that adjusted pre-tax profits for the 12 months to 31 March had soared 82 per cent to £27m. Turnover rose 51 per cent to £178m.

Helphire not only finds people replacement cars, it also does repair work and handles insurance claims. Although it rarely discloses the names of the insurance companies it gets referrals from, the AA, Churchill and Saga are thought to be among its biggest clients.

Despite the impressive growth evident in yesterday's figures there is plenty of room for more of the same over the coming years. Analysts estimate that less than a quarter of people involved in accidents where they are not at fault are offered services similar to those of Helphire. Of that total, about 40 per cent go to Helphire alone.

Many in the City were surprised by last month's news that the group had received a takeover approach from CVC Partners. Private equity firms tend to shun outfits such as Helphire, which have high stock market ratings and use all the cash they generate to fund future growth. As it happens the talks came to nothing.

Brokers now forecast profits at the group to rise to £41m in the year to 31 March 2007, leaving the stock valued at 16 times earnings. That is quite a premium to its rival Accident Exchange which currently trades at about 12 times. Nevertheless, Helphire shares are worth holding on to.