Eastern promise is best ignored

Standard Chartered; Liberty International; Oxford BioMedica
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The Independent Online

Not many UK banking bosses can offer an investment case based on their company operating in some of the world's most exotic countries. But Rana Talwar, chief executive of Standard Chartered, is among them. Yesterday he unveiled plans to take the bank closer to its Eastern roots via a full stock market listing in Hong Kong.

Standard Chartered's exposure to Asia distinguishes it from its London-listed peers by providing a credible growth story. Its presence in Hong Kong, Singapore, Malaysia and, more recently, India and Thailand, provides competitive advantage in the burgeoning markets for current accounts, credit cards and long-term savings. These regions are still predominantly cash-based economies, so it is easy to see the potential. A Hong Kong listing will provide cash and lift Standard Chartered's profile as it expands beyond its core territories in the region.

But renewed uncertainty over the economic outlook in Asia overshadowed a decent set of half-year figures yesterday. Acquisitions made last year helped revenues grow by 11 per cent year-on-year, and pre-tax profits rise 16 per cent. Margin erosion in the key Hong Kong mortgage market has abated, Mr Talwar said. And to the City's astonishment, the bank met its targets on costs, which rose only 6 per cent.

However, bad debt provisions have risen 26 per cent in six months. Mr Talwar said there was unlikely to be a crisis like 1997's, and there was a chance, if the US economy avoids recession, of an upturn in Standard Chartered's unsettled markets by the end of 2001. But the overriding message was of caution.

The shares gained 3.2 per cent to 836p as investors gained confidence in Standard Chartered's ability to prevail in a downturn. UBS Warburg, the house broker, expects earnings per share, on a cash basis discounting depreciation, of 92 cents next year, which makes Standard Chartered slightly more expensive than homegrown rivals such as Royal Bank of Scotland. The Eastern promise explains the premium, although amid continuing economic uncertainty this is probably one exotic investment that can be safely ignored.

Liberty International

British shoppers have made 180 million visits to Liberty International's shopping centres in the last year, as the consumer continues to spend, spend, spend. That has been great for retailers' sales, but has not done much for Liberty. The property group, chaired by Donald Gordon, said yesterday that it has seen rent increases grind to a halt in the six months to June.

Beleaguered retailers have become unwilling to pay big increases as they focus on maximising profit. Although Liberty denied one industry watchers' recent suggestion that rents at its Lakeside shopping centre in Essex have tumbled by up to 19 per cent, the risks are of further earnings erosion. Lakeside was valued as a £900m chunk of the group asset value unveiled yesterday, disappointingly unimproved after a year of refurbishments. Liberty's per-share net asset value rose from 796p a year ago to 812p but is unlikely to make much progress from here in the short term.

The value of, and earnings from, Liberty's commercial property portfolio – which is focused on London's West End and accounts for 10 per cent of Liberty's business – are under pressure, too. The corporate slowdown is spreading beyond the technology sectors, the company warned, and occupancy levels will fall.

Liberty is right to argue that its core shopping centres offer one of the most defensive property investments in troubled economic times, and it does have the best portfolio of these retail metropolises. But the soothing words, which sent shares up 12p to 515.5p, disguised the fact that it is already battening down the hatches. It increased the interim dividend by by a ha'penny to 10.75p, when its usual practice would have suggested something a shade higher. The shares are no more than a hold.

Oxford BioMedica

Oxford BioMedica, the gene therapy firm set up by the husband and wife professors Alan and Susan Kingsman, has been a disappointing investment for shareholders who took part in its most recent £35.5m fundraising at 55p-a-share in April.

The business continues to make progress in its work on the genes linked to disease. An update with interims yesterday promised news on partnership agreements for its gene discovery unit later in the year, while two technologies to help in the treatment of cancer are currently in clinical trials.

The shares climbed 3.5p to 36.5p but the stock is never going to be suitable for widows and orphans and is probably too risky as long as biotechnology shares remain out of fashion.

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