Fool's Eye View

[ February 18, 2000 ]

Halifax -- eBygum

By Rob Davies (TMF Essex)

This week has been a busy one for news and it has been a struggle to keep even vaguely up to speed with all corporate results, plus the odd IPO. Typical of this is that during the last few days I was dimly aware that news was coming out of the Halifax Group (LSE: HFX), yet it was not their results. I was also aware that the news flow was Internet and new eConomy related. Nevertheless, all that got pushed to the back of the cranial cavity while I dealt with more pressing matters, like getting my heating sorted.

However, the announcement today of results for 1999 has brought the company to the front burner. Or at least, that and the share price. It has been in the sunset zone, falling from 900p to just over 400p, for the best part of a year. Then this week it resembled a ferret going up a trouser leg. Clearly, something was up: time for Chief Inspector Essex to investigate.

The results themselves were encouraging. Profit before tax rose modestly to £1,265m, but earnings per share (EPS) increased by 12% to 53.3p. Both figures were affected by the repatriation of £2.3bn to shareholders. That had a positive effect on the EPS figures due to the reduction in shares outstanding.

In the feverish housing market of last year it would of course be a bit of a surprise if this business did not do well. Mortgage sales rose by 25%, so net lending doubled to £2.4bn; no wonder house prices went up. Even so, this company has only 6% of the market and that is the reason behind the flurry of press releases this week.

The venerable old Halifax is going into new 3 channels and has beefed up its board with eNtrepreneurs to lead the charge. These new areas are: Greenfield.co, Halifax Online and esure. Together they will cost £150m and will deploy £1.5bn of capital so it seems quite serious about it. Last year the company did experience some security problems with its online broking service and that seems to have made it determined to tackle the whole affair of e-business at the highest level.

Halifax Online has 100,000 customers so it is already a significant force in this market. By taking on people like Charles Dunstone (Carphone Wharehouse) and dealing directly with digital TV, cable and mobile phone companies the company seems to have stolen on a march on its high profile competitors like Prudential (LSE: PRU), with Egg, and the co-op, with Smile. But I doubt that these companies, or the other competitors, will stand idly by.

Mention of the Pru reminds us that this insurance company is going into banking with egg. But the Halifax has recruited Peter Wood (Direct Line) to lead esure, the Internet-led insurance business. So not only do the financial services sector have to cope with ferocious competition from each other in their traditional activities, they are increasingly stepping on each other's toes in new areas. This business space is going to be fought over very fiercely in the next few years. While this might be fantastic news for customers, investors will need to pick their way through the contestants with great care.

Foolish comments on these developments can go to:
The Halifax message board
The Banking sector message board