Investment Column: Halifax brand name gives it that extra appeal

HALIFAX, the building society that converted to a bank, making shareholders of its members, started life helping Yorkshire folk to buy homes. As a FTSE 100 company, it now has a different character. Although its head office remains in sleepy Halifax, its directors are based in London. They've been doing the sort of things the directors of FTSE companies like to do - handing back cash to shareholders and looking at deals. But what about Halifax's core activities?

Having handed back pounds 2.25bn to shareholders in the last 18 months - more than any other company in the world - chief executive Jim Crosby has at last decided to focus on the business.

Halifax's traditional mortgage and savings business is becoming increasingly competitive. In the first half of the year, group margins on both loans and savings narrowed, if less so than at Halifax's peers. As market leader, Halifax has the most to lose to Johnny-come-lately lenders. The worry is that borrowers are getting their calculators out to work out the best deals, instead of going blindly to established brands.

But Halifax's key asset differentiating it from its rivals is its brand. The proof of its strength is Halifax's scooping of one-third of all cash ISA balances. Now it is seeking to apply its strength in other retail financial activities, such as long-term savings. Recently established businesses now account for 35 per cent of group profits, up from 29 per cent last year. Meanwhile, it is being aggressive on costs, which should grow by less than 1 per cent this year.

Lehman Brothers expects full-year pre-tax profits of pounds 1.74bn and earnings of 51.3p this year, putting Halifax on a forward price-earnings ratio of 14. That's in line with the sector. But Halifax, with its brand's strength, should really command a premium.

The shares fell 13p yesterday to 698p, largely because of heavy buying the previous day in anticipation of good results. At less than 700p, Halifax is the choice play in an oversold sector. Buy.