Transcript: Should You Buy Shares In TSB?

Lloyds (LSE: LLOY) (NYSE: LYG.US) is set to spin-off challenger bank TSB, but should private investors get in on the IPO? Owain Bennallack debates the pros and cons with Nate Weisshaar and Mark Rogers. The team also tackle dividend investing and the recent Russian/China energy tie-up, and share three companies that have recently caught their eye: Smith & Nephew (LSE: SN)Sterling Energy (LSE: SEY) and Saga (LSE: SAGA).

This is an unedited transcript of this podcast

Owain Bennallack: Welcome to Money Talk, the investing roundtable from The Motley Fool. I’m Owain Bennallack, and joining me today is Nate Weisshaar, who’s calling in from Motley Fool headquarters in the United States, and also Mark Rogers, who is alternately smiling and glowering at me from across the table. Good to have you here, guys.

Mark Rogers: Hey, Owain.

Bennallack: Haven’t had your glower in the studio for a while.

Rogers: It has been a while, hasn’t it?

Bennallack: It has. Nate, good to have you on the ISDN line.

Nate Weisshaar: I so miss Mark’s glowering.

Bennallack: I’ll send you a photo.

Mark, last time we saw you here on Money Talk, you were just plain old Mark Rogers, Investor — humble investor in boring lift button manufacturers. Not anymore! Now you’re Mark Rogers, Friend of the Super-Investors.

Rogers: How times change.

Bennallack: Yes. You went to Omaha; not something that’s changed many people’s lives, but it did change yours … he says, building it up …

Rogers: It changed my waistline, from all of the fast food and See’s candy that I ended up buying.

Bennallack: But also, you met someone out there, didn’t you?

Rogers: I did. And this is completely random, but I actually met Ted Weschler, one of the investment managers who’s going to slowly take over from Warren Buffett’s investment portfolio. He was just standing there at the meeting, and I bounded out of my chair and insisted on shaking his hand and harassing him.

Bennallack: What Mark means to say is, Ted Weschler was standing there by his car in his own drive, trying to go to work …

Rogers: Exactly. He was just standing there!

Bennallack: Mark appeared out of the bushes and rugby tackled him.

Nate, have you met any famous investors in the last week?

Weisshaar: Other than Tom Gardner and David Gardner and Andy Cross … no. No, not really.

Bennallack: Well, we have Tom Gardner here in the U.K., as we speak — co-founder of The Motley Fool, of course — so we can even trump you on that one because we could go and just chat to him now, if we wanted, Nate. I could leave the podcast room right now and chat to him about investing.

Weisshaar: I’m just an investing nobody.

Bennallack: Really, I think it reflects poorly that Mark travels all the way to Omaha, and — I don’t know what the word is; hijacks? — Ted Weschler … and you’re there in the country already. You’ve got to step it up a bit.

Rogers: What Owain’s saying is we want Warren Buffett as a guest on the next podcast. If you don’t mind arranging that, Nate.

Bennallack: I am happy with Munger. Munger or Buffett.

Rogers: We’ll accept either.

Weisshaar: I’m sure I can get that done.

Bennallack: Excellent news.

Obviously, no one out there knows who Ted Weschler is!

Rogers: No.

Bennallack: This is seriously big news, guys, but you have to be …

Rogers: A sad investing 25-year-old, to really care about that.

Bennallack: Well, it does span the ages, Mark, because I am very jealous of your lifelong friendship with Ted Weschler you’ve now established. Don’t forget us when you get to the top, Mark. That’s all I can say. Nate hasn’t forgotten us since he moved to the U.S.

On to the podcast. To start with, I’d like to talk about yet another IPO. This time it’s TSB, the high street bank that’s being spun off by Lloyds. To coin our earlier terminology when we discussed IPOs, is TSB hot, or is it not?

Next up, the fast-shifting energy picture in Europe. With Russia signing a deal to supply gas to China, and looking to start fracking in Russia, we’ll ask what the deal means for us, and indeed whether Europe needs to get on board with the controversial fracking bandwagon.

Then we’re going to introduce a new section. Yes, hold onto your hats — in upcoming podcasts, we’re going to work through various basics of investing. First up, we’ll be having a look at constructing a high yield share portfolio.

Finally, we’ll conclude with three companies that we’ve each been looking at. Does that sound like a reasonable bill of fare?

Weisshaar: Seems about right to me.

Rogers: Sounds good.

Bennallack: Okay, let’s crack on and start with TSB. Lloyds has now announced that it intends to float 25% of its shares in TSB next month — or in fact this month, now, by the time you guys hear this.

This is going to be a new old so-called challenger bank. I say “old” because those of us who have been round the block can remember when TSB was plain old TSB. Lloyds was obliged to create TSB — new TSB — by the European Commission, as a consequence of it needing state aid in the midst of the financial crisis.

Nate, with 631 branches and 4.5 million customers, TSB is much smaller than the main high street banks. Are there any attractions to compensate us, as investors?

Weisshaar: I think there are. It will be the seventh-largest high street bank in the U.K., so obviously much smaller than the big three or four, depending on how you want to count them.

Bennallack: I normally count them by the number of legs they have, so Lloyds has four legs. Whereas, IBS is that kind of eagle, isn’t it? That’s only got two legs.

Weisshaar: All right … Well then, TSB is going to have a fraction of a leg.

Bennallack: It’s much smaller, in general, in terms of customer base and just general size. It’s going to be valued at about £1.5 billion, they’re saying?

Weisshaar: Yes. It’s going to be much smaller, but that give investors, obviously, room to grow. If the bank can deliver on its promises to build its share of the market, then you’ve got a lot more upside than you do with a bank like Lloyds, who’s already dominating the market and doesn’t have a whole lot of room to grow, other than alongside the economy. So, you’ve got that aspect of it.

Unlike a lot of challenger banks, TSB is coming out a little bit ahead. They’re starting with a leg-up because they get to piggyback off of Lloyds’ infrastructure — the electronic infrastructure, as well as the regulatory infrastructure — and those are two big cost centres for any bank that’s getting started up, so they’re kind of hitting the ground running.

On top of that, they’re coming out with essentially a clean slate. They’ve got no exposure to any bad selling practices that may have occurred over the past several years. Lloyds is taking all the blame for that, and letting TSB come away clean.

Additionally, they’ve got a lot of capital. Their balance sheet is bolstered by a core equity ratio of 17%, which is well above what we’re expecting to be the regulatory requirement of around 10-11%, so they’ve got plenty of firepower to go write some loans and grow the business.

As long as they can make a compelling offer to customers, they should have a pretty decent chance, at least of building their name among the challenger banks.

Bennallack: I thought you might be interested in TSB, just because we’ve spoken in the past about how the U.K. has so few banks compared to, say, the U.S. — competent banks.

Another reason why private investors might want to invest in this float … it’s a bit like the recent Saga IPO. If you do invest in TSB at float, and you buy a bunch of shares, then if you hold onto them, after a year you’ll be given one free share for every 20 that you hold — which is effectively like getting a 5% uplift, because you’re automatically going to get one free share for every 20 you hold.

Nate, is that a sort of cherry on the cake?

Weisshaar: It’s a nice little bonus for long-term investors, but I’m not sure it’s enough of a reason to buy the IPO. If you don’t really think that TSB has a chance of eating into the market share of Lloyds and RBS and Barclays and HSBC, or the other smaller challenger banks, then the appeal of that 5% boost is probably not quite enough to tip you over.

Bennallack: I have one other question which is, in the past we’ve spoken about how banking is effectively becoming a commodity business. Usually, big is best in commodity businesses, so would that not be true here, with TSB? Would not its size mean that, ultimately, it can’t compete with those huge banks?

Weisshaar: Well, that’s a good question, and one that all the investors out there should be asking themselves. The smaller banks may be getting some assistance from the government. The government may reduce some of their regulatory requirements, and therefore lower the cost so they’re more able to compete with these larger banks.

As I said, TSB will benefit because they will be relying on Lloyds infrastructure, so they don’t have to build out their own. It’s a tried-and-true system, so there’s a little bit of cost reduction there.

So, TSB has a bit of an advantage there, but to your point, it is going to become a bit of a pricing game because TSB will need to be winning customers away from other banks. You can do that a couple ways, but generally with banking it comes down to the cost of the services, or the pricing of the services.

Bennallack: Mark, in terms of the initial float and the pricing thereof, Lloyds has until the end of next year to sell off the 3/4 of the bank that it doesn’t initially list in the flotation, so that does give it an incentive to get it away for a good price, doesn’t it?

Rogers: Yes. There’s an odd psychology to it, really, that doesn’t apply in other areas of investing. It’s not just a case of them just trying to get the best deal possible in terms of, sell it for as high a price as you can to offload it to shareholders. That would logically sound like the best deal, but considering they do have to get rid of the rest of it over time, it’s in their interest that the IPO does well, from the outset.

Of course, the best way of making sure that that happens, so when you go back to the well next time out, is that there’s a decent investment performance; that investors who get involved in the first round don’t have a terrible experience, and hopefully it enhances the reputation of the issue.

Bennallack: Cool. Right, it’s time to start whispering in furtive voices to each other. Mark is already sweeping the room for bugs for me, with his metal detector. Whatever you do, we all have to make sure that this podcast does not go up onto any public forums — iTunes, say, Motley Fool website, anything like that — because we’re going to talk about shady deals between Russia and China.

Nate, I’m kind of half-heartedly trying to capture the tenor of at least some of the reporting about this Russian China gas tie-up that has occurred, and some people are being a bit hysterical about.

Really, they’ve been talking about this for many years, haven’t they? It’s all being done out in the open. Russia has a lot of energy. China needs some. The deal makes a lot of sense for them, doesn’t it?

Weisshaar: Yes. This deal has been in the works for more than a decade. The real issue had been pricing. China wanted lower prices, Russia wanted higher prices. But given Russia’s current situation, they decided to make some concessions on the pricing, and the deal got done. Well, the deal has been signed. It’s far from “done.”

The deal will stretch for 30 years, once it starts going, but in order for it to happen, Russia needs to build a pipeline to get the gas from Siberia into China. We’re looking at that maybe being completed by 2018.

So, overall, this is a 30-year deal worth $400 billion, and Russia will be providing a significant but not dominant portion of Chinese natural gas demand from 2018, say, on.

Bennallack: Just briefly, it’s not necessarily the latest sign of a new Cold War that Russia’s made this deal? It was doing it even when we were all best friends, a couple of years ago.

Weisshaar: Yes. This is really just pretty much economically-motivated activities. Russia has a lot of gas to sell, and anyone selling a good doesn’t want to be reliant on one customer. We’re seeing that the Europeans were trying to use the fact that they buy most of Russia’s gas as a lever in their negotiations with Ukraine.

This is why sanctions would have actually worked, but at the same time, Europe was very dependent on Russia, so that’s why sanctions were limited I how far they were willing to go.

Bennallack: On that note, Nate, it seems to me a good thing that trade is coming before conflict, and that these dependencies are perhaps stopping … I don’t know, the onset of World War III …

But if you’re a bit more gung-ho about that kind of thing, does this deal mean that we should also be upping the ante on our side? Should we be now producing more gas, so we don’t have to rely on Russia so much, in case it does invade someone else?

Should we start fracking Leicestershire? Is that what this boils down to? Is that a mad response?

Weisshaar: I’m not sure if that’s the exact response that we need, but I think just like China, diversifying your sources of energy is an incredibly intelligent move. Becoming less reliant on any one source or any one supplier gives you lots of options, and makes you less susceptible to pressure.

Europe and Ukraine have demonstrated this. When Russia wanted to apply political pressure, they would just turn off the gas taps, and Ukraine really couldn’t do much about it.

And we’re now seeing the same thing in the U.K. — gas prices have been rising, energy prices have been rising, because the North Sea’s production levels are declining, and we’ve had to import more and more of our gas.

Really, fracking is potentially one answer, but in reality the U.K. just needs to find as many potential sources of energy as possible, and diversify — just like an investor diversifying their investment portfolio.

Bennallack: I agree. You could easily say it’s a reason to up the ante on offshore wind or wave power or whatnot, I suppose.

Mark, one thing this deal does definitely do is it gives, as Nate says, Russian energy companies more options in terms of how they realise their assets.

Rogers: Right.

Bennallack: If we assume that, in a bleaker world where Russian energy companies sell to China instead of Europe, that we’re still able to retain our investments in Russia — which might be a bit of a leap, in the most doomsday scenario! — then Russia, which is dominated by these energy companies, the Russian market, is looking pretty cheap at the moment, isn’t it?

Rogers: If you’re looking at it on paper, yes. You’re talking about the Russian market having a P/E of about 6 at the moment, which is just extraordinarily low, compared to the S&P 500 in the U.S. being more like 18, in terms of its P/E at the moment.

Another statistic … when you compare the total market cap of those Russian companies to Russia’s GDP, that ratio is now at its lowest point, pretty much since 2000 — so, as far back as you can go since the end of the Soviet Union for Russian stock markets, basically.

So, it’s statistically cheap, but many investors worry, are you going to see your money again? Which is a pretty serious question to ask, when you’re looking at investing in the region.

One thing that you can do if you’re a U.K. investor is look at U.K.-listed companies, U.K. businesses, that do business in Russia. I know that one — that I own personally; I know Nate owns some as well — is a company called ITE Group, which runs trade shows and exhibitions in the region, just as an example.

Bennallack: The theory there would be, your rights as a shareholder would be better-protected by U.K. law, but you’re still subject to the vagaries of the Russian economy, and potentially Russian political interference with your company’s operations.

Rogers: Absolutely. There are some elements that you just can’t protect yourself from, and you have to have a degree of trust that, in that particular situation, that your company is going to be okay.

But in terms of governance and auditing and all the rest, just tying up those lose ends and making sure that the company is correctly all above board, having a U.K. listing and being based over here is a pretty good deal, I think.

Bennallack: Of course, buying cheap helps.

Rogers: Yes, absolutely. That’s something that you can do, if you’re looking in the right places in Russia at the moment.

Bennallack: Turning from investing at the wild frontier of World War III, back to the day-to-day business of buying U.K. shares for the long term, Mark has had the bright idea of suggesting we cover some investing basics in our podcast from time to time.

Mark is still a young man. He hasn’t yet learned the dangers of suggesting things, which in this case, is that having suggested we talk about building a portfolio of high-yield shares for dividend income, I’m now going to ask him to talk about it. Mark, take it away.

Rogers: Yes. It’s something that we get asked all the time at The Motley Fool — what’s the secret to building a portfolio of high-yielding dividend-paying shares? It’s easy to see why that’s interesting at the moment; the rates that you’re going to get on a savings account here in the U.K. are just pitiful at the moment, not worth bothering, really.

So, a lot of investors are turning to the stock market to try and replace some of the lost income that they would have gotten from those bank accounts, which makes some sense.

Of course, you do have to be very careful in how you do that, so I thought it would be useful to just offer some Foolish pointers, if you like, as to general guidelines and things to look for — or maybe not look for.

Bennallack: Certainly, going out and just grabbing all the highest-yielding shares is not the way to start, is it?

Rogers: Exactly, and that’s the first point — I think the best point — is, don’t just look down to the yield column and say, “Right, that’s a high number, that’s a high number, that’s a great investment.”

That’s an easy pitfall to fall into, but you do have to ask how sustainable is that dividend yield? More often than not, if it’s in the historical yield column and it’s ridiculously high, it isn’t. That’s why it’s so “cheap.”

That’s, I think, probably a good first thing to look for. It sounds weird, but I think it’s almost the last thing that you should be looking at, is the yield column. After you have made certain that it’s the right business, and the right investment for other reasons, then you look amongst those great companies, and find the ones that are offering a satisfying yield.

Bennallack: Essentially, you’d be looking for companies that are generating a lot of cash flow, and you have a lot of confidence that that will continue.

Rogers: Yes, and I think that’s a great point. It’s focussing on the business, which I think is really important, and the sustainability of that business, and therein, the sustainability of that dividend. There’s no point in investing in a high-yielding company if it’s just not going to be sustainable over time.

Dividend growth as well — it’s all well and good to have a high-yielding opportunity, but is this a company that can grow its profits over time, generate the cash to sustainably pay out hopefully a growing dividend over time, which is really where a lot of money is made, even among income investors?

Bennallack: In terms of safety checks, you might look at the debt — how much debt it has to pay — because obviously it has to pay the bank before it can pay shareholders.

Rogers: Right.

Bennallack: So, look at how much the interest payment is covered by either profit or cash flow. Also, how much is the dividend covered by the cash flow. Because, obviously if it’s covered 1.1 times, that means there’s only a 10% buffer.

Rogers: Exactly, and when you think about the other things that a company just has to pay out for, whether it likes it or not — maybe on machinery just to keep the business upright over time, and to cover depreciation and things like that; investments that the company has to be able to make, to move forward — you don’t want to be in a position where the company is struggling to make those payments, or having to sacrifice the dividend, or one or the other.

Bennallack: Another good piece of advice on this I think is to get your companies in different sectors. You might go along and go, “Consumer goods is a good area for dividend paying,” but if you put all your money into that basket and then there’s a bit of a recession, or some sort of slump, you may have been better off having some shares in some oil companies, maybe even a bank — maybe TSB — a safer bank, perhaps. Spread your money between sectors.

Rogers: I think that’s great advice, Owain. Just one final point on this is — just something that I like to look at personally, maybe more than most — is the track record of the company when it comes to paying that dividend out.

You can get data that goes back 20-30 years in some cases, of companies that have been able to grow their dividend over time. As well as that, you can look at some situations where a company might have a high yield on paper, but it’s cut its dividend something like five times over the last 10 years or something like that. There are some warning signs that you can glean from that.

Bennallack: That might be fair enough, from the business’ perspective, but it’s not going to suit your purposes as to having a stable, growing income.

Rogers: Exactly. That’s something that is always worthwhile thinking about for an income investor.

Bennallack: The other thing to think about, if you are out there thinking this is quite a lot of work evaluating these companies, is you can get 3.5% from the FTSE 100 at the moment, and also there are still lots of investment trusts that pay a decent dividend, based on U.K. equity income. They’re not as cheap as they were. Some of them even sell at a slight premium to their assets, but you can let them do some of the hard work.

Nate, I’ve noticed, with working with you and with our colleague Nathan Parmelee — both of you honourable Americans — over the last few years I’ve noticed that you’re not so obsessed about yield as some U.K. investors are, are you?

Weisshaar: No. In general, I would say that Americans aren’t quite as focussed. Although, the fact that I still have a long time before I need to rely on my investment portfolio for income, probably skews my perspective on that.

The other big thing that skews it is probably the U.S. tax system, which isn’t quite as harsh on taxing capital gains — or dividends don’t have quite the same appeal, from a tax perspective — so it’s less of a clear-cut decision on how you want to go.

But I guess it’s also part of investing philosophy. I completely understand why investors would love to have that steady, reliable income of cash coming from their company, not only because it provides the income, but because it instils a bit of discipline on management, and they’ve got to remember that they’re going to be paying this cash out to shareholders, so they can’t necessarily go splash out on some silly acquisition — so there’s that benefit to it.

But if you’ve got a good management team, and one that you trust — which, if you’re investing in the company, I hope you have at least a certain level of trust in the management team — they should be able to find good projects in which to invest the company’s money, which is the other option.

A company has a limited number of things it can do with its cash. It can pay its dividend, it can buy shares in the company — a share buyback — it can make acquisitions, or it can invest in new projects.

If the company has great growth prospects and lots of new markets, new products, new opportunities for investing back into the company, then I see that as a very appealing option, and one that I’d personally prefer over dividends, especially at this point in my investing life.

Bennallack: I guess one danger, just very quickly, on the buyback angle, is that historically companies have not proven to be very good judges of when to buy back their own shares. Whereas, if they pay me a dividend and I think the shares look cheap, I can decide to buy more of their shares. If I think the shares look a bit expensive, I can go and buy some other company’s shares, that might pay me a better yield, even.

Weisshaar: Yes, and that’s one argument for dividends, is that it puts the capital allocation decision in the shareholder’s hands, and you don’t have to rely on management.

Bennallack: Okay, let’s crack on with our three ideas. Nate, what are you probing with your valuation instruments right now?

Weisshaar: I’m more watching Smith & Nephew; not necessarily “probing with valuation instruments.”

Bennallack: Why not? Surely, you probe every day!

Weisshaar: I’m more interested in the sideshow right now. The shares are up over 20% since mid-April, solely on the back of mergers and acquisitions activity elsewhere in the industry. This isn’t necessarily a new thing.

It’s happened several times over the past decade or so, that Smith & Nephew has been tabbed as an acquisition target. With some very close competitors doing deals in the U.S., the rumour mill has started up again. This is making Smith & Nephew shares do some pretty interesting things.

Bennallack: I can see that that attracts your attention to the shares. Does it make them a buy? You wouldn’t just buy on this rumour, would you, Nate?

Weisshaar: I personally wouldn’t. As we saw with the AstraZeneca/Pfizer deal, there’s no guarantee that anyone will actually come by and swoop up Smith & Nephew. When I invest, I’m really looking at the fundamentals of the company.

Right now, the price action probably doesn’t appeal to me as a buyer, but I’ve been watching the company for a couple years now, and they’ve been making some good moves on their own, diversifying their product portfolio. They’ve made a few acquisitions as well.

So, fundamentally I like the company. I just don’t think that it is one to be buying right now, just on the speculation. I think it’s a high-quality company with pretty strong value, going forward, and good growth potential. But right now I would steer clear. Gambling on potential mergers is not really my investing style.

Bennallack: Okay, that’s still good information if people are holding the shares and wondering what’s happened.

Mark, we haven’t heard from you for a while. Obviously you’ve got, probably Ted Weschler’s thinking, working into your investing strategy now! What have you been looking at?

Rogers: This is going to be partly in the spirit of the World Cup England squad.

Bennallack: It’s a losing investment.

Rogers: Now, I know neither of you guys are going to get this, but the company is Sterling Energy.

Bennallack: I think you’re talking about the striker who scored a goal against — whoever they played — Peru.

Rogers: What’s his name?

Bennallack: Sterling.

Rogers: What’s his first name?

Bennallack: Mister.

Rogers: Mister Sterling, you’re right! Mister Sterling.

Okay, Sterling Energy. I normally run a mile from small cap resource stocks. They tend to make for terrible investments; it’s not my kind of thing. However, I did feel like looking into the sector, see if I could find a bargain, and I was quite impressed with this company, Sterling Energy.

The company has no debt, and it’s valued at £63 million market cap, and it has £72 million of cash in the bank, so that’s a relatively stable underpinning. On top of that, another rare thing, being a small cap resource stock, it’s actually cash flow positive. It’s not losing a ton of money from really unprofitable exploration.

Bennallack: Yet.

Rogers: Yet. Okay, yes.

Anyway, the company’s projects that it has, actually end up covering the management costs and admin and all the rest, which is pretty rare. In term of upside, they have joint ventures with ExxonMobil and Genel, which is another company we’ve spoken about on the podcast before.

Again, this is not really my kind of field, normally, but I think if you’re going to look at something in the sector, something like this … I guess “deep value” is one way of describing it, and with some potential upside if things do start going right for them. I think it looks interesting.

Bennallack: It sounds amazing. The market is valuing the company at negative £7 million. I’m sure Nate’s keen eye will have already picked up on something, though. Nate?

Weisshaar: Well, yes. The cash looks pretty appealing, but the nature of this business is to spend lots of money drilling holes in the ground or the bottom of the ocean, and that’s not a cheap endeavour.

While the cash is bigger than the market cap right now, presumably that cash will go into exploration, and not directly back to shareholders, correct?

Rogers: That’s true and, in terms of exploration, the risks associated with that are the same — as they tend to be, with this sort of opportunity — pretty high.

In fact, the company just had a major, major miss with what was probably its premier project. It ended up abandoning it, plugging it, because it turned out to be completely un-economic to produce oil from it. So, that can happen in this sort of situation.

In terms of what the company is going to look to do with that money, well, giving it to you and me — if we were shareholders — isn’t high up their list of priorities. The company is going to go back in and look for more opportunities to spend that money on these different projects, which might or might not produce a good outcome.

It’s certainly not a no-brainer that that money is going to produce value for you, as a shareholder.

Bennallack: It’s interesting, though. Basically, you can pit your wits against the market. The market says it’s probably going to burn through the cash, and if it’s cash flow positive on its existing projects, then in some sense the upside is free.

Rogers: Right, that’s the thing. A lot of these blue sky projects, you end up with companies that are losing a ton of money, and they have to keep coming back to shareholders saying, “Hey, give us more money. We want to carry on drilling big, expensive holes in the ocean.”

In this case, the company is still cash flow positive from the project it has at the moment, and I guess it is all upside, in that sense, if they do find something.

Bennallack: I’m going to be very quick with my share, because we’ve been speaking at some length about banking and these other exciting topics.

I’m going to return briefly to Saga, which Nate and I discussed, I think, last podcast. It has now floated, and the shares … I think “floated” is the operative word. They’ve sort of just drifted, virtually horizontally, as of this recording, at about 185p, which was at the very bottom end of expectations.

They don’t look particularly cheap. I think the P/E is about 14 or 15, 3.5% yield expected. But I’m thinking that hundreds of thousands, literally, of people may have bought these shares thinking it’s the new Royal Mail, and inasmuch as some of them pay attention, they may have noticed that the shares are just kind of corpsing along.

I do wonder if some of them will get a bit disgruntled — disenchanted even — and maybe start to sell off the shares. If that was to happen, and the price was to start trickling down, we could get an opportunity here, purely on — I don’t want to say “technical” factors — but not much to do with the operation of the company.

Rogers: Would you be interested in buying the shares if they didn’t take a dip from here, or would it purely be if that happened, because there was that disenchanted factor, that you’d look to pounce on it?

Bennallack: I think that it’s a really interesting company. It’s an insurance business with this extremely strong brand name. The number of over-50s is forecast to grow I think from about 22 million to about 29 million over the next 20 years, so it’s a growing ageing market.

But I don’t think you want to pay too much for that, to make a decent return. You can compare it to other insurance companies, and it doesn’t look particularly cheap. So, I think for me, it would be a factor of trying to get it at about 160-165p, and trying to get a bit of extra edge in the investment there.

I think there was a lot of hype about the IPO, and I don’t think it’s delivered, so if you can get an extra 20% off the price, that’s pretty good.

Rogers: That’s interesting.

Bennallack: That wraps us up for this week. If you’d like to hear more Motley Fool wisdom, then you could head to our free site, or else you could download our free report on becoming a millionaire, the slow and Foolish way.

I saw Mark putting another 50 pence into his piggy bank this morning at lunch, so he’s been reading that report. You can follow in his footsteps by going to and downloading that report. Otherwise, I’ll say goodbye to you over there, Nate.

Weisshaar: Goodbye.

Bennallack: Goodbye, Nate, thanks for tuning in. And, Mark …

Rogers: See you, Owain.

Bennallack: We will be here again, doing it all in a couple of weeks. See you guys.

Of course, the financial crisis showed it pays to do your research before investing in banks, so please don't invest merely on the back of this news about TSB. Download our free report to learn more about investing in big, complex banks like Lloyds and understand how to choose between them and newcomers like TSB. Click here to learn how to understand banks today!

The Motley Fool owns shares in Smith & Nephew.