If I could make just one forecast for 2016. it would be that the forthcoming retail sale of about 4 per cent of Lloyds Banking Group, a bit less than half the remaining government stake, will be a success. This is not going to be another Royal Mail — the shares rocketing ahead by almost 40 per cent on initial dealings because the advisors to the Treasury underpriced them — because there is already a market in Lloyds shares.
Instead, the share sale, worth at least £2 billion, is being sweetened for the retail investor. The shares are being sold at a 5 per cent discount. Small investors, putting in less than £1,000, will get priority. Hang on to them for a year and you get a bonus share for every ten you buy, up to a maximum value of £200.
Hargreaves Lansdown reckons that, if you factor in the expected dividend for 2016, if you hold the shares, then the £1,000 invested should return another £200, assuming the shares hold their value.
There is every reason they should. The Financial Conduct Authority is considering a deadline on further claims for payment protection insurance, which would put a cap on banks’ further exposure to this liability. Lloyds was one of the worst-affected, provisions reaching £13.9 billion, including another £500 million announced for the third quarter of this year.
The so-called “dribble-out” of government shares to the institutions has come to a halt, with the shares, up ¼p at 71¼p yesterday, now below the 73.6p break-even price for the state investment. The remaining 5 per cent or so could go out to the City at the same time as the retail sale, if the price remains above that break-even.
The TSB sale means that Lloyds has met the requirements of the European Union in the wake of the state rescue and has about 2,200 branches, a bit more than a fifth of current accounts and a quarter of the mortgage balances in the UK. There is no awkward investment bank requiring expensive ring-fencing and it is an almost pure play on the improving UK economy. By 2017 the projected dividend payments will provide one of the best yields on the market, approaching 7 per cent at today’s price. Given all the above, I would be in no hurry to buy the shares in the market now, though.
9% Remaining state stake
MY ADVICE Avoid for now
WHY The Lloyds retail share sale in May looks to be priced to go, with plenty of sweeteners, and investors should wait until then
It is a fair bet that even in their native Denmark, Zitcom and ScanNet are not exactly household names. These provide cloud services for businesses and individuals there, and they are the subject of an unspecified investment by HgCapital, the private equity firm, which intends to roll them up together and create a strong player in the Danish market.
Retail investors can invest in HgCapital themselves through HgCapital Trust, a quoted entity.
HgCapital used to have a reputation for high-tech investments but has moved gradually away from this area. Three years ago, though, it launched the Mercury Fund, a nod to its roots as part of Mercury Asset Management, to invest in just such businesses. The Trust is putting in £3.2 million, so the investment probably is worth about £20 million. It leaves the specialist fund about 45 per cent invested.
HgCapital has had a busy year, this being the 13th deal so far, split about half and half between purchases and realisations. There have been a few currency headwinds from its investments in European and Nordic countries. The dividend yield isn’t much to write home about, but the record for capital appreciation is a good one.
The shares have largely marked time since the spring and fell 9p to £10.86 yesterday. They trade, therefore, at well below the latest net asset value given — £13.14 in November. One would expect some discount because of the illiquid nature of the assets held, but that gap looks wide. One for the new year, then.
£3.2m invested by Trust
MY ADVICE Buy
WHY Hg’s record is a good one for growing capital value
One senses that analysts have very little idea how much damage will be done to International Personal Finance’s core eastern European business by the crackdown in regulation on payday lenders charging sky-high rates.
This spring Poland will introduce its own legislation. The lender has indicated that this will cut potential profits from its business, in its biggest market, by up to £30 million, against an expected total of £72 million, although efforts to mitigate the effects probably will reduce this to nearer £21 million. In addition, Polish authorities are mulling extending a banking tax to lenders such as IPF.
The company learnt this week that Slovakia plans to go ahead with its own legislation. This will be rather less damaging because it is a smaller business, about 5 per cent to 6 per cent of the whole group, but the decision is a blow. IPF has options — to focus on growth markets, such as Mexico, or on supplying loans online in markets affected by that added regulation. The shares, off a penny at 292p, sell on eight times’ earnings and offer a yield of 4.5 per cent. This should protect them on the downside, but I see no obvious catalysts to buy.
£30m Potential lost profits in Poland
MY ADVICE Avoid for now
WHY Potential uncertainties remain hard to judge
And finally...
Georgia Healthcare must be among the more niche investments on the stock market, owning 42 hospitals and being the largest provider of medical services in the Caucasus country (as opposed to the southern US state). Owned by Bank of Georgia, itself quoted in London since 2006, the company came to the market in November. A note from Numis Securities points out that Georgia has the advantage of being a low-tax, liberal economy where access to publicly financed healthcare continues to improve.
