Investment Column: Head for the exit until Lloyds comes clean

Greene King; Mattioli Woods
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The Independent Online

Our view: Sell

Share price: 106.9p (+0.59p)

Shares in Lloyds Banking Group have been on a relentlessly upward path ever since the company unveiled what were, on the fact of it, pretty poor results. The company was able to report a statutory pre-tax profit thanks to goodwill credits, but that number misses the point. The better figures to concentrate on are the "clean" pro-forma numbers, which showed the company losing £4bn, not least thanks to £13bn-worth of bad loans.

The shares' froth has been driven by the company's bold prediction that bad debts have peaked and hopes that it may be able to renegotiate terms of entry into the Government's asset guarantee scheme. As things stand, some £260bn of dodgy assets are due to go in and, at £15bn, the premium is pretty steep.

If the rate of losses from bad loans is slowing, optimists believe the bank may not need to pay up, particularly if it can tap its (non-Government) shareholders for cash. There appears to be an appetite for this among some of them.

Officially the bank has maintained a delphic silence as the speculation has reached fever pitch, which doesn't say much for the way management view investors. After what they have been through as a result of its disastrous merger with HBOS, they really deserve better.

Oriel Securities has Lloyds on a forecast multiple of about 14 times this year's forecast earnings, although the "clean" figure is in negative territory after all the accounting quirks that allow the bank to report a statutory pre-tax profit are stripped out.

It may be that Lloyds Banking Group is the recovery play of the new century. There are plenty of traders who seem to think so. But we'd prefer to sit on the sidelines until there is clarity regarding the bank's intentions. The shares have been pushed high enough for our liking. So sell.

Greene King

Our view: Hold

Share price: 482.9p (+2.5p)

It is a long time since the pub industry was enjoying a happy hour. As if the recession wasn't enough, it has had to put up with smoking bans, taxes, and, especially, supermarkets selling booze on the cheap. So yesterday's trading update from Greene King was reasonably encouraging..

Like-for-like sales were up 4.6 per cent, driven by food, which showed an 8 per cent rise. Perhaps the company is benefiting as cash-strapped Britons eschew fancy restaurants in favour of the less expensive fare they might find at their local.

Margins have not fallen by as much as some might have feared, given cost pressures and the need to sharpen offerings to keep consumers coming through the door. Greene King's brewing business has done well too, snatching market share in a declining market.

But the company's statement about the outlook going forward is hardly positive. Consumer spending remains under pressure, with rising unemployment, static or falling wages and an overall nervousness about splashing the cash. The brewing sector is also a likely target for yet more tax rises as a future government seeks to balance the books. That is not least because the constant diet of scare stories about "binge-drinking Britain" the BBC is fond of filling News 24 with will give it the excuse of portraying such a move as a health measure.

We last looked at Greene King in January and said "hold". The shares are marginally ahead of where they were then, having recovered after falling sharply earlier in the year. Trading at 10.9 times full-year earnings, the shares are not overly expensive, and the prospective yield, at 4.4 per cent, is good. Greene King has been doing well in a difficult environment, but we are still cautious because of the strong downside risks that remain. So we still say hold for now.

Mattioli Woods

Our view: Buy

Share price: 214p (-2p)

Recession or not, pensions are going to remain an issue for companies and individuals despite this and previous governments' inclination to ignore the issue. Which is where Mattioli Woods comes in. The Aim-listed pensions consultant offers advice to the sort of people who all too easily find themselves lost in the ever more complicated pensions maze.

Yesterday's results shows it continues to be a growing business. Revenue was up a fifth to £13.3m, not least because the credit crisis meant clients felt in need of professional advice. The increase in fees therefore offset a sharp decrease in revenues from the company's sideline of setting up property syndicates, and profits grew to £4.2m (£3.7m).

It's always a risk investing in a people business like this – the chief revenue-earning assets (in this case MW's consultants) have a habit of walking out the door for greener pastures. Still 11.5 times next year's forecast earnings doesn't make the shares overly expensive, and the prospective yield after factoring in yesterday's welcome dividend increase is good at 4.3 per cent. So we tentatively say buy.