Between the lines of Pitman's shorthand

The Investment Column

Sir Brian Pitman's position at the top of British banking has only been enhanced by the first full year's performance of Lloyds TSB, the financial services behemoth he has created and now chairs. As well as being Britain's biggest domestic bank, the group is the UK's third- largest life insurance company and probably took a bigger share of the new mortgage market than any other lender last year.

But the headline numbers are impressive too. Since the December 1995 reverse takeover of Lloyds by TSB, profits have soared 52 per cent to pounds 2.51bn, producing a storming 48 per cent return on average shareholders' equity, close to double the previous year's figure. According to Sir Brian's new economic profit measure, which attempts to measure returns after deducting the risk-adjusted cost of equity, the bottom line has fattened 69 per cent to pounds 1.06bn in 1996.

It is little wonder the bank's shares have outperformed the rest of the stock market by a quarter since the merger, rising another 1.5p to 503.5p yesterday. The raw figures do, however, need more than a little interpretation.

First off, integration has muddied the waters. Stripping out the 1995 charge of pounds 425m for TSB and another pounds 75m charged last year for restructuring Lloyds Abbey Life, 100 per cent-owned since last December, would trim the profits growth back to 24 per cent. Within that, probably the biggest boost came from a full-year's contribution from Cheltenham & Gloucester, the former building society for which Lloyds paid pounds 1.7bn in 1995.

The addition of C&G, which raised its profits contribution from pounds 67m to pounds 336m, was a key factor in the increase from pounds 1.27bn to pounds 1.72bn in the core retail financial services operations. Most of the 23 per cent increase in average domestic lending to pounds 73.5bn came from C&G and mortgages now represent around 45 per cent of the group total.

That has had the happy effect of increasing the quality of Lloyds' loan portfolio. Arrears at C&G run at around half the industry average, so the addition of its mortgage book has helped dilute the effects of Lloyds' existing problem lending.

Thus bad debt provisions tumbled from pounds 583m to pounds 327m last year. Lloyds is boasting that for the first time, its total outstanding provisions of pounds 2.55bn are greater than the level of non-performing loans.

The underlying business of Lloyds is clearly of high quality and Sir Brian has made all the right strategic moves so far, eschewing investment banking and US adventures to focus almost solely on the UK market. He continues to search for another building society and possibly another insurance company.

But the cycle never dies and Lloyds' dependence on the UK could prove a handicap when it finally turns. That moment could be close: last year's bad debt charge of 0.4 per cent is a level not seen since 1988, just ahead of the last banking crash.

Meantime, profits this year of pounds 2.95bn would put the shares on a forward p/e of 14. Hold.

Bounce goes out of Grosvenor

While its peers in the managed pub sector have continued their recent relentless rise, shares in the Slug & Lettuce pub chain Grosvenor Inns have had a dreadful year, falling from a high of 285p to a recent low of 165.5p. After a good bounce towards the end of last month to about 220p, half year results yesterday put the boot in once again and the shares sagged 17.5p to 206p.

The fall yesterday came despite a 25 per cent jump in pre-tax profits to pounds 1.10m, struck from a 36 per cent rise in sales to pounds 11.8m. Earnings per share were 17 per cent better at 5.7p and a half year dividend of 3.025p, up 10 per cent, is to be paid.

Analysts took the company to task for its failure to translate a 43 per cent rise in sales at its core Slug & Lettuce chain into a similar rise in profits. A rise of just 27 per cent reflected continuing investment in the brand and the cost of beefing up its food offering. Two new sites in Windsor and Upper St Martin's Lane in London recovered from a slow start and are now beating their budgets but if Grosvenor is really to capitalise on the brand it needs to roll Slugs out faster than it can currently manage.

That means making quicker progress in releasing funds from the half of its business which is going nowhere - some wine bars such as Hodgsons on Chancery Lane and a handful of taverns, which are really nothing more than bog-standard old fashioned pubs. In the books at around pounds 12m in total, a sale of those assets would free up much-needed capital for the 20 Slug & Lettuce openings the company promises but arguably can't really afford just yet.

The other main worry to emerge from yesterday's figures was the early exit from the Bar Central concept whose failure was underlined by the discount to net assets represented by the pounds 2m it achieved on disposal. Grosvenor also had to pay Inntrepreneur half a million pounds to take five duff pubs off its hands. With all that baggage it is hardly surprising the market won't put the shares on a Wetherspoon or Regent Inns sort of rating.

On the basis of forecast profits of pounds 2.4m this year, the shares trade on about 16 times prospective earnings per share. That's a discount to the rest of its fashionable sector but deservedly so. Grosvenor is doing the right things, focusing on its core brand, but until it gets out of its funding bind the shares are high enough.

Start your day with The Independent, sign up for daily news emails
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Recruitment Genius: Online Customer Service Administrator

£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

Recruitment Genius: Digital Marketing Executive

£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

Day In a Page

'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Russell Brand's interview with Ed Miliband has got everyone talking about The Trews

Everyone is talking about The Trews

Russell Brand's 'true news' videos attract millions of viewers. But today's 'Milibrand' interview introduced his resolutely amateurish style to a whole new crowd
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before
'Queer saint' Peter Watson left his mark on British culture by bankrolling artworld giants

'Queer saint' who bankrolled artworld giants

British culture owes a huge debt to Peter Watson, says Michael Prodger
Pushkin Prizes: Unusual exchange programme aims to bring countries together through culture

Pushkin Prizes brings countries together

Ten Scottish schoolchildren and their Russian peers attended a creative writing workshop in the Highlands this week
14 best kids' hoodies

14 best kids' hoodies

Don't get caught out by that wind on the beach. Zip them up in a lightweight top to see them through summer to autumn
Robert Fisk in Abu Dhabi: The acceptable face of the Emirates

The acceptable face of the Emirates

Has Abu Dhabi found a way to blend petrodollars with principles, asks Robert Fisk