Investment Column: The black horse can gallop once more


Click to follow
The Independent Online

Our view: Buy

Share price: 32.2p (+1.36p)

Lloyds Banking Group has given retail investors a rough ride. The black-horse was a small shareholders' favourite because of its low-risk retail banking business and its seemingly safe dividend.

Then came the rescue takeover of HBOS. Our chart's already unedifying picture of Lloyds' profits masks the wreckage of the deal. After a bail-out by the Government, which owns 41 per cent, huge write-offs on HBOS's crazed lending caused a £4bn pro- forma loss in the first half of 2009.

What's more, the bank, which is now led by former Santander UK boss Antonio Horta-Osorio, was forced to scrap its prized dividend.

So, where do we go from here? First the negatives. Lloyds makes most its profit in the UK, and the news on the British economy has been fairly grim.

Like all UK banks, it also faces regulatory uncertainty. It has to sell 632 branches under its competition agreement with the EU and the Independent Commission on Banking (ICB) wants it to offload a further big chunk. All the while, low interest rates have compressed the net interest margin, and there's no dividend.

For the positives, look to the long term. Lloyds has the scope to make big cost cuts. The bank also has serious pricing power from its dominance of the UK retail banking market. Moreover, regulatory pressure works both ways. Lloyds will be relatively unaffected by plans to ring-fence retail and investment banking, which will hit rivals. If it all works out, it can pay a dividend. This is one for (very) patient punters. Buy and sit tight.


Our view: Buy

Share price: 446p (+1p)

You can scarcely escape the Greggs name at the moment. Its chief executive Ken McMeikan's assistant came second on The Apprentice, some of its shops have sadly been targeted by rioters and the aforementioned boss has been out and about trumpeting his schools breakfast club for underprivileged kids.

Amid all this bluster, the company posted a resilient set of results this week. Like-or-like sales (excluding newly opened stores) continue to rise, albeit slowly. Profits for the six months to July 2 eased by £1.2m to £17.3m, but there were a couple of extra bank holidays, notably for the royal wedding.

Though the profits were a shade disappointing, and while Greggs has not been immune from rising input costs, the sales growth is not to be sniffed at in this trading environment.

Moreover, it boasts a robust balance sheet, and the shares trade on an undemanding 11.8 times forward earnings. The prospective yield of 4.3 per cent is also appealing. Given the above, we would view the recent share price weakness as a buying opportunity.