More on HBOS
HBOS: H1 2006 trading update
HBOS said trading for the first half of 2006 was “robust” with stable interest margins, a good contribution from non-interest income and tight cost control expected to drive earnings.
The company said it had maintained its market share in terms of net mortgage lending which may mean that volumes have dropped compared to last year due to the slowing market.
In corporate lending, credit quality is said to be benign but trading conditions more competitive indicating possible pressure on margins.
Investment products and insurance products are selling well, a trend we have witnessed amongst the long term insurers as well. To an extent, sales of such products are inversely correlated to the housing market – and therefore form a useful hedge for HBOS. When people are optimistic on house prices they tend to invest their money in property, often liquidating their other investments or borrowing to do so. When the housing market is slowing people tend to put their money in pensions, insurance and various other savings and investment products instead of in property,
With rising interest rates and a slowing housing market – HBOS is playing in a more difficult environment. Higher levels of bad debts and lower margins are inevitable but we are still reasonably confident that HBOS can maintain earnings in line with the sector although it is less likely to outperform the sector.
The star performers are likely to be the banks with overseas, particularly emerging markets exposure such as HSBC and Standard Chartered.
The share trades at 944.5p, on a prospective PE (2007 earnings) of 9.1x, which is at the lower end of the sector range with a yield of 4.5%.
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