The Investment Column: Hambros faces uphill struggle

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The Independent Online
A year of restructuring and the arrival on the share register of Regent Pacific, an upstart Hong Kong vulture fund demanding a break- up, have done nothing for Hambros' reputation in the City. The merchant bank's "beautifully decorated" board yesterday reported a return to the black for the half-year to September and was rewarded with a 7.5p fall in the share price to 245p.

It is not difficult to see why Hambros irritates analysts. Most of the swing in the interim results from losses of pounds 7.7m to profits of pounds 35m came not from trading but from arguably one-off items. The group reorganisation threw up exceptional costs of pounds 2.9m, down from pounds 8.8m before, while bad debts in the bank fell from pounds 23.5m to pounds 5.9m.

Much of the rest of the increase came from areas nominally not under the group's control. Both the quoted subsidiaries saw sharp upturns in profitability, with Hambro Insurance Services rising 50 per cent to pounds 4.5m and Hambro Countrywide, the estate agency, back in the black for only the second time since 1988, with profits of pounds 10.5m replacing losses of pounds 5.8m.

Even in the parts of Hambros where management is supposed to deploy its expertise, the half-year figures present a mixed picture. The group's investment portfolio threw up a profit of pounds 20.4m, against pounds 13.2m last time, mostly from disposals. But these profits are volatile and Hambros was warning yesterday not to expect a repeat of that performance in the second half.

Which leaves the bank itself. Much of the reorganisation has been concentrated here as part of a new strategy of reducing risky and low-margin lending and replacing it with higher "added value" services. But this is going to be a long haul and analysts were pointing disparagingly at the 7 per cent return on net assets of pounds 298m.

Hambros faces an uphill struggle to convince the City that Regent's criticisms of the management are misguided. It will not be helped by news that current chief executive Sir "Chips" Keswick is to take on the chairman's role next year. Profits of, say, pounds 70m this year would put the shares on a forward multiple of 17. Hold to see what Regent can do, but investors should not hold their breath.