More on Alliance and Leicester
Alliance & Leicester: H1 2006 results
Alliance & Leicester, which was subject to an unsuccessful takeover bid by Credit Agricole SA, reported a drop in core operating profits for the half year to June 2006. Core operating profit for the period dropped to £268m from £272m last year.
The company did warn that margins were under pressure but the drop in profits is a bit of a surprise. Larger volumes of mortgage lending were expected to offset the lower margins and loss of volumes in consumer sales.
The bank has launched a number of new initiatives and says it is on track to meet its strategic targets but we remain somewhat sceptical.
Our concerns with this bank have not changed since we last looked at it. Although the news that costs have not increased is welcome, the bank’s cost:income ratio is still high (last reported at 55% compared to 45%-50% for more efficient players). Shrinking margins and an aggressive expansion in the mortgage portfolio, just as the housing market is slowing are also worries.
The company says the bank’s franchise is growing well but with conditions toughening for the industry this stock looks to be a laggard. The share price has been held up by speculation over takeover bids (and it does remain a good target) but on its own merits the share has less to offer than its peers.
The share trades at 1044p, on a prospective PE (2007 earnings) of 12.4x, within the sector range, but only slightly lower than HSBC, which looks set for strong growth. The yield is 5.5%, slightly above the sector average.
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