Hey, I know that U.K.-based financial services company Lloyds TSB
Lloyds' results for the first six months of 2005 were strong. Income growth exceeded cost growth in all three divisions. The U.K. Retail Banking segment (43.9% of profits) reported a 3.8% rise in profits. Wholesales and International Banking (35.0% of profits) showed a 6.4% increase in profits. Insurance and Investments (21.1% of profits) registered profit growth of 13.8%.
In a slow-growth market like the U.K., focus on operating effectiveness is critical -- and it was one of the three objectives announced by the company last year. The news here is good, too. Return on average equity increased 0.40%, to 21.9%. And, showing they are milking more profits out of each revenue dollar, the cost-to-income ratio (a measure of operating efficiency) fell 1.1%, to 53.8%.
While the company labeled "asset quality" as satisfactory, investors would be wise to watch impairment charges on loans and overdrafts -- which increased 0.11%, to 4.45% of average lending. The fact that the company avoids sub-prime lending is of consolation.
The Inside Value team was attracted to this business for a number of reasons. The bank was transforming itself. It had divested many of its foreign assets. The company acquired many U.K.-based financial institutions. There was ample opportunity for the stock market to overlook this budding opportunity.
The company is led by the former CEO of the Citigroup
Oh, and one last thing. Let me not forget to mention that Inside Value computed the intrinsic value to be 30% more than the current market value.
There is plenty of competition from companies like HSBC
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