Scrutineer: Mystery over C&G U-turn

Published on Wednesday 19 August 2009 20:44

Lloyds 98.72p +1.96p

WHAT an extraordinary U-turn by Lloyds Banking Group to review its decision to close the Cheltenham & Gloucester branch network. This is a chain of 164 high street units that only two months ago were deemed surplus to requirements when Helen Weir, Lloyds' executive director of retail, said the "strategic focus for C&G from now on will be to further strengthen its intermediary and direct savings businesses".

Lloyds offered no explanation for putting the decision on hold, though fingers are pointing at a number of possibilities.

It may have yielded to union pressure for job losses to be spread across the bank or, more intriguingly, from the European Commission for the bank to sell assets. Has it received an offer to take C&G off its hands, thereby reducing, as the commission demands, both its exposure to the retail and mortgage markets?

It's hardly surprising, however, that it has said so little on the subject.

When The Scotsman heard rumours about this last week, we were told that no-one knew anything about it and a promise to call back wasn't honoured. So good luck to the C&G staff and the union in their attempts to get some clarity.

Looked at cynically, it seems that strategy is being made up on the hoof, though this smacks more of an intervention from an unexpected source, as alluded to above.

In the meantime, the uncertainty is doing little for staff morale. Even now, this is not a pardon, merely a stay of execution.

MPC vote

SO, WAS Mervyn King wounded by his decision to opt with the minority at the Bank of England's rate-setting meeting earlier this month?

Minutes of the meeting reveal that the Governor was one of three members of the monetary policy committee (MPC) who wanted to pump even more money into the economy than the other six. They argued that there was less harm in boosting the money supply by too much than there would be by increasing it by too little.

It was enough of a shock that the MPC chose to print another 50 billion when there had been speculation that it would hold back. King, together with new member David Miles and retiring member Tim Besley, wanted to add a further 75bn that would have taken the total to 200bn.

Failure to get the unanimity markets had expected saw the pound fall in value. There was clearly some concern that talk of a recovery may have been overdone.

As for King, he has shifted his position somewhat from his hawkish stance of a year ago, but is clearly keen to stay ahead of the curve.

Has he been damaged by being outvoted? Not really. There was no either-or argument, merely a difference of opinion on the size of the latest stimulus to the economy. All agree that the quantitative easing programme must continue in order to give further support to the fragile upturn in the housing sector and in demand across the economy, while acknowledging that recessionary pressures remain.

King was outvoted back in August 2005 when he wanted to keep rates steady and the decision then to instigate a programme of cuts has been blamed for inflating the house-price bubble in the following two years. But he was less nimble over calls for cuts to interest rates in the lead up to the bubble bursting.

This time, he seems to be rather less bullish about prospects for recovery and is taking no chances. But split or no split, a further stimulus from the MPC is looking likely in November.

Are we over the worst?

THE trend among the many surveys on the economy is now firmly in the "less negative" phase, which is hardly a reason for popping champagne corks but is being taken as a sign that things are changing for the better.

We're still deep under water, but steadily heading to the surface. Even so, the language remains depressingly discouraging.

The CBI's latest assessment of the manufacturing sector shows that demand remains "very weak", export orders "feeble" and the volume of output is expected to fall over the next three months.

Richard Lambert, director general of the CBI, is taking a few positives from the latest analysis, not least that destocking has forced manufacturers to raise production.

There is still a worry that a further jolt to the system would reverse the process.

However, it's looking as if a lot of firms that learned to live with high and volatile commodity prices have also worked their way through the credit squeeze.

Bryan Johnston of Brewin Dolphin

ONE TO WATCH

Interserve

228.5p -0.5p

Scotsman says BUY

INTERSERVE is an infrastructure services company operating through five divisions: facilities management; specialist services; specialist cleaning operations; project services; equipment services; and a Private Finance Initiative (PFI) division.

The recent interim results from Interserve were impressive. Pre-tax profits rose from 36.5 million to 39.3m, with earnings per share up nearly 20 per cent to 23.1p. Both the facilities services and specialist services divisions were affected by slowing demand in their core UK markets but the project services side did extremely well, largely as a result of hefty exposure to the Middle East. The company's equipment services operation produced an exceptional performance, gross earnings up nearly 50 per cent, as clients moved from buying to hiring.

There are some issues with Interserve.

One half of the company's profits are generated in the Middle East, where trading conditions have deteriorated in some regions. There is a 250m pension fund deficit, while favourable foreign exchange rates can easily be reversed.

Nevertheless, the shares do not look expensive, on a prospective price-to-earnings ratio of less than six and a yield of more than 7 per cent.

The stock has begun to recover, having been down to about 160p at the beginning of March, but, even so, is a far cry from the 420p level on which it stood at the third quarter of 2008.

No small company, it is a constituent of the FTSE 250 index, had revenue of 1.8 billion in its latest full year and has a workforce of 50,000 worldwide. If the green shoots by which it is claimed we are now surrounded turn out not to be weeds, then Interserve should prosper.

&#149 The value of your investment could fall and you may get back less than you invested. You should take professional advice if you have any doubt about the suitability of this company for your portfolio.

Buoyant Menzies delivers the goods

SCOTS STOCKS

JOHN Menzies was the toast of the City yesterday, as the logistics group predicted that it would beat its forecasts, even after analysts have been raising their expectations in recent weeks.

Brewin Dolphin increased its target price on the shares by a whopping 80 per cent to 359p, saying trading was "extremely resilient" and that Menzies "is looking increasingly comfortable against covenant and facility headroom".

Only a few months ago there were rumours that Edinburgh-based Menzies was facing severe repercussions if it breached its debt terms, sending shares below 50p in March. Yesterday, the group's stock rose 24 per cent to 291p.

Firstgroup, the Aberdeen-based transport giant, dropped on reports that the company will bid for the east coast rail route between Edinburgh and London if it is offered by the UK government after being stripped from rival National Express.

Shares in First closed down 1.5p at 355p, while rival Stagecoach climbed 1 per cent to 145.3p.

ProStrakan, the Borders pharmaceutical firm, is expected to report a loss of about 13 million for the first six months of 2009 today, but shares have been buoyed as profitability, expected in the first half of 2010, draws closer. Shares closed 2.75p higher yesterday at 122p.

On Aim, Celtic Football Club fell 2.5 per cent to 39.5p, after defeat by Arsenal lengthened the odds of the club making it into the lucrative group stages of the Champion's League.

Aberdeen-based oil explorer Faroe Petroleum rose as it committed to drilling two wells in the Norwegian part of the North Sea. Shares in the group rose 3 per cent to 69p.

Lidco has its heart set on posting maiden profit

SMALL BUT BEAUTIFUL

LIDCO, the Aim-listed maker of heart monitors, yesterday revealed it was on course to return its maiden profit.

Directors expected revenue in the six months to 31 July to be "significantly higher" than in the corresponding period last year, following a "strong sales performance".

Interim results are due to be posted on 29 October and Lidco expects revenues in the second half of the year to outstrip those in 2008. The firm said: "Against a more challenging environment for capital equipment sales, the company's revenue growth represents an increase in market share and, in particular, reflects record disposables sales."

Last month, the company signed an exclusive distribution agreement for its LidcoRapid monitor with Aspect Medical Systems, which has one of the biggest anaesthesia product sales teams in the United States.

Terry O'Brien, chief executive of Lidco, which has a market cap of about 30 million, said: "Lidco has seen a significant level of commercial activity in the first half of this year, while at the same time strengthening its balance sheet by raising 3.1m of equity financing in May and receiving corporate licence fees from Becton Dickinson and Aspect."