Investment Column

Our view: Buy

Share price: 803p (+13p)

Most people are familiar with the story of the tortoise and the hare. In financial services terms, the hare would be Royal Bank of Scotland, which set off into the last financial boom at a rate of knots, only to blow up as it approached the finishing line of the good years.

In contrast, Provident Financial kept to its business model of lending modest amounts over the doorstep to known personal customers, with its agents paid on debt collection. Hardly heart- racing stuff, but in 2008 the group was the best-performing financial stock on the London Stock Exchange, with its shares ending in positive territory.

The group issued full-year numbers yesterday, saying that pre- tax profits were up 11.8 per cent in 2008 to 129m, with the chief executive, Peter Crook, saying that 2009 is expected to be strong. The group has 250m of headroom on its debt covenants and committed facilities of 1.1bn. The level of impairments is flat, says Mr Crook, and he assures the market that the company is being ever more diligent on how much it lends to whom, and when.

If investors are eager to buy into the sector, Provident Financial is frankly their only option. As the company was putting out its numbers yesterday, its competitor Cattles was issuing a second profits warning in as many weeks, with no indication as to when it would publish its delayed results. As an extra bonus tip for today, Cattles is a sell.

Provident Financials stock is not cheap, but that rather goes without saying given the competition. On our current 2009 forecasts, Provident Financial trades on a price-earnings ratio of 10.3 times and yields 8.3 per cent. The latter figure continues to reflect the high payout ratio that is part of the groups strategy. Our current target price is 990p and we have a buy rating, the analysts at Teathers say.

We do think that impairments will increase in 2009 as the recession takes its hold on peoples jobs and they are left in a position where they can do little other than default, irrespective of the groups touchy-feely business model.

Caution, however, is the companys watch-word and the shares will be supported this year by the fact that there is no refinancing risk. Buy.

Admiral Group

Our view: Buy

Share price: 895p (+20p)

Record revenues, record premiums, record profits and a record dividend: it is pretty tough to argue that Admiral, the motor insurance group, had anything other than a very good year in 2008.

Ask most chief executives what their biggest fear in 2009 is and the usual response is the fallout on their business from the economic mess.