Wednesday, 4 June 2008

That sinking feeling

HBOS - what a performance. Today, google's finance website claimed that HBOS now has a price-to-earnings ratio of 3.24. Imagine that, for every three pounds worth of shares, investors get back one pound in dividends. So why aren't people buying?

Answers please, but no rumours. The FSA have forbidden them. So don't tell me that your gran in Bridlington has seen a queue outside HBOS.

Why is HBOS doing so badly?

13 comments:

online free lottery said...
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aSteve said...

One thing to remember is that P/E ratios are based upon earnings estimates that might be out-of-date or inaccurate.

Another thing to note is that all the banks have been claiming business profits but capital one-off losses. The idea by analogy is that a courier firm might claim to have made a net profit of £5K this month on £10K revenues - even if, during the month, an error lead to the write-off of an uninsured £25K delivery van. They argue that the accident with the van was an extraordinary capital loss - while the business itself was profitable.

Another concern is their rights issue... While they appear to be making about 30% profit, they've also done/announced a 4:10 rights issue - equivalent to a 40% capital loss. With a little help from accountants I can offer you as many opportunities as you like to make a 30% operating profit on a 40% capital loss. ;)

I strongly suspect that this is why investors aren't rushing to buy into HBOS.

Anonymous said...

Investors generally don't trust dishonest companies that bleed money. They've gradually figured out HBOS is such a company.

Nick

aSteve said...

An interesting question about HBOS... First a little history:

http://www.independent.co.uk/news/business/news/it-will-surprise-people-fsa-gets-to-heart-of-hbos-share-scandal-825705.html

It is past the end of the month, and I've not found anything published about the "smoking gun". I've emailed the independent and asked... No reply. ;)

aSteve said...

Further commentary on HBOS' share price.

http://www.livecharts.co.uk/livewire/2008/04/28/hbos-speaks-with-forked-tongue/

I tend to agree with the author that serious questions need to be asked about the FSA's behaviour - to me it looks like market abuse. I disagree about the BoE being at fault - who, as far as I recall, only refuted that the BoE had been approached for emergency funding.

It is time to start asking for the evidence behind the "smoking gun"... it simply shouldn't be acceptable for regulators to make unfounded claims of criminal behaviour in order to manipulate the market.

Mark Wadsworth said...

Top stuff.

You could do charts of share prices in banks since they started sliding in early 2007; ditto homebuilders, estate agents/property service companies; Real Estate Investment Trusts; even commercial property (altho' a bit more difficult to track down).

They are all going through the floor. And some people still think that house prices will hold up?

Alice Cook said...

Mark, Good idea. I will start posting a couple. Any suggested companies?

Alice

aSteve said...

More HBOS stuff...

http://thescotsman.scotsman.com/business/39Don39t-panic39-plea-from-worried.4143582.jp

Highlights:

* £8m of losses in the first four months of 2008 (so P/E ratio probably very, very wrong)
* 26.8 per cent of its mortgage book was attributable to "specialist balances", mainly buy-to-let and self-certification mortgages.
* Simon Willis, a banking analyst at NCB Stockbrokers, said: "The most obvious read-across from Bradford & Bingley was HBOS, because it is the second biggest player in buy-to-let.

I wouldn't usually read the Scotsman, but it is a good article.

aSteve said...

(On suggestions) The LSE allows you to search by sector... Two of the sectors are:

* Construction & materials
* Real estate

http://www.londonstockexchange.com/en-gb/pricesnews/prices/trigger/indexsector.htm?bsg=true&in=1191884.FTSE

Several of the ticker-symbols aren't familiar to me... but I'd suggest that this represents a fairly comprehensive view of the relevant UK based companies.

Mark Wadsworth said...

Alice, see asteve's second post.

Might as well do industry sectors, saves time. My idea was stick them all one chart, house prices will stick out like a sore thumb.

aSteve said...

Among the real-estate companies is Grainger... I'd not heard of it:

http://www.graingerplc.co.uk/

It claims to be "UK's largest quoted residential property developer."

It is doing remarkably well, considering...

http://finance.google.com/finance?q=+GRAINGER&hl=en

Does anyone know why?

CityUnslicker said...

and lots of posts on HBOS here from a few weeks ago

aSteve said...

It is worth noting that HBOS has a dirty secret... a stealth subprime lending arm: "The Mortgage Business"

http://www.t-m-b.co.uk/