More on Bradford & Bingley
Bradford & Bingley: H1 2006 trading update
Bradford & Bingley, reported that the momentum seen in its last full year results has continued in the first half of the current year. In a trading update released today the bank said that new business volumes have been “very healthy”, credit quality “sound” and that profits were in line with market expectations.
While margins on new business have remained broadly stable, changes in funding mix were likely to put pressure on margins in the second half. When a bank experiences strong growth in lending, which appears to be the case with Bradford & Bingley, it needs to raise funds to lend. If this is not planned well in advance, it can lead to higher borrowing rates for the bank. However, given that interest rates have been rising we would expect some rise in interest costs (and possibly margin erosion) across the sector.
The company says that while credit quality is still good, there has been a moderate increase from the “historically low” levels experienced recently. However no figures have been provided. Again, given the slowing economy, this is something that will affect the sector as a whole and no cause for undue anxiety – provided the figures, when they are released, are indeed within expectations.
Costs are said to be growing more slowly than revenue, which is pleasing and continues the trend seen at the end of last year.
Overall, not a lot seems to have changed since we last looked at the company. The stock offers exposure to lending to the housing market, which is currently sluggish. Long term growth will depend on the health of the housing market and currently, prospects do not look particularly inspiring but a good lending pipeline should see short-term results being unaffected by slowdowns in the housing market.
The share trades at 443.5p, on a prospective PE (2007 earnings) of 10.9x, in line with the sector with a yield of 4.7%.
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