More on Bradford & Bingley
Bradford & Bingley
Bradford and Bingley’s reported poor results, pre tax and exceptional profits were up 6% to £280.2m. The bank has disposed of its non-core businesses, resulting in a loss on sale of £123.2m. The surplus of consideration over net assets sold of £9.7m was offset by goodwill write-offs of £107.6m and other costs of sale of £25.3m. These included redundancy and closure costs. These businesses made a loss before tax and exceptional items of £8.3m (2003: £9.8m). As a result of these exceptional items, pre-tax profits were down to £105.3m from £264m last year.
Bradford & Bingley’s growth in the first half was driven by the non-core businesses, their disposal has resulted in a fall in income of £23m. Total lending income increased by 7% to £314.3m (2003: £294.6m) and profit before tax in the lending business increased 9% to £249.6m (2003: £228.1m).
Group net interest income for 2004 is showed a small increase over last year but margins have continued to decline, not a healthy sign.
Bradford and Bingley reports that its cost cutting programme is on schedule to deliver savings of £35m in next year and £40m the year after, although at a cost of £40m to implement it seems a rather expensive way to reduce costs. Costs in the core businesses for this year are expected to be in line with 2003.
Wimpey, the housebuilder recently reported increased levels of interest in housing which might be a good sign, although it is a bit early to tell if the bottom has been reached. We are still cautious in our outlook and believe it could tighten further.
Bradford & Bingley’s strategy of focusing on its core retail business, the disposal of non-core interests and the reduction of costs cannot be faulted and may well lead to real growth in the medium-term but we believe this to be some way off.
We expect the housing market to tighten further and competition will increase putting further pressure on margins and loan growth. With Bradford & Bingley trading at 328p the prospective PE of 10.6x it does not particularly cheap, its peers offer better value and a less volatile outlook.
Bradford and Bingley’s prospective yield, however, is attractive at 5.7% and dividend cover (3x at H1, 2x in FY03) is acceptable.
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