Three finance stocks to buy now

Each week, a professional investor tells MoneyWeek where he'd put his money now. This week: Nick Brind, manager of the HIM Income Fund.
Our research shows that the financial sector's risks have been overblown. And there are still plenty of attractive investment opportunities left despite the sharp recovery in share prices over the last six months.

In the non-life insurance sector, for example, Sampo (FH: SAMAS), a Finnish company with a market capitalisation of €9.5 billion, offers an extremely attractive play on the Nordic financial sector. Sampo owns If, one of the largest property and casualty insurance companies in the Nordic region, and Mandatum Life, a life insurance company operating in Finland and the Baltics. It also boasts a dividend yield of 4.7%.

The chairman, Bjorn Wahlroos, has a stake of more than 2% in the company, which very much aligns his interests with external shareholders. Indeed, under him the company has created significant value. For example, in May 2007 it sold Sampo Bank, the third largest bank in Finland, to Danske Bank (Denmark's largest bank) for €4.1 billion. That price was equivalent to an extraordinary 3.7 times book value or 16 times earnings. This cash has since been reinvested over the last year with around one half of it sunk into buying close to a 20% stake in Nordea, the Nordic region's largest bank, for less than 1.5 times book value.

Within the banking sector there are big opportunities for strong banks to capitalise on the woes of their weaker competitors, many of whom have had to rely on state funding to survive, or are no longer in business. DnB NOR (NO: DNBNOR) is one such predator. It is Norway's largest bank with a market capitalisation of NOK86bn. It remained profitable in 2009 despite fears that its exposure to shipping loans would result in significant asset write-downs.

The wider Norwegian economy has proved extremely resilient over the last two years, and with its oil wealth, remains the envy of many countries. Indeed, Norway is expected to raise interest rates over the coming months, which will help DnB NOR. This, and the collapse in competition, will result in a widening of net interest margins. Trading on a small premium to tangible book value, but a big discount to many of its European peers, it remains a solid investment.

At the riskier end of the spectrum, International Personal Finance (LSE: IPF) – market capitalisation £440m – is a home-collection lender operating in central and eastern Europe and Mexico, but listed in the UK. It demerged from Provident Financial in 2007, a similar firm that has never made a loss in its 120-year history. The idea was that it would trade on a high-teens price/earnings ratio reflecting its greater growth prospects in emerging consumer-finance markets.

Its key strength is that it borrows long term to lend short term (the exact opposite of a bank). It also only lends small amounts of money to individuals. Despite this, its shares fell sharply at the end of last year, and during the early part of this year, over concerns about its exposure to eastern Europe. The shares have partly recovered, but still only trade on a forecast 1.3 times book value and eight times earnings for 2010. Some of its peers trade on as much as four times book value, which highlights the potential upside for the share price.

The stocks Nick Brind likes

	12-month high	12-month low	Now
Sampo	€17.72	€8.63	€17.57
DnB NOR	NOK74.00	NOK14.90	NOK70.70
International Personal Finance	225p	58p	2

Free Credit Report

Ever wondered why you’ve been turned down for a new purchase or a loan? Credit ratings seem to be a mystery to most people, as many don’t know their rights, how lenders make their decisions, how credit scores are calculated and how they can be challenged and improved.

The contents of your personal credit report can have a bearing on whether or not you are given credit. Factors other than the information held on a credit report may contribute to a lending decision as well (such as the information you provide on your application form), but your credit report is important.

You have the right to view the information contained in your credit report to make sure it is accurate. If errors are found, you are entitled to apply to have them corrected. Having the ability to view and challenge your credit report is important, as; in addition to providing the basis for a lending decision, your credit rating may also affect the interest rate you are offered by lenders, which could lead to more costly borrowing.

Credit reports are compiled by credit reference agencies using information from two main sources:

1) The Public Record: e.g. electoral roll information, court judgments, individual voluntary arrangements and bankruptcies.

2) Information provided by lenders and financial institutions: e.g. credit accounts, credit applications and financial associations.

When you apply for a loan, the lender will typically contact a credit reference agency to check the information on your credit report, in order to help them calculate your potential creditworthiness and risk. These calculations are done by the lender and may vary between lenders. It is important to note that the credit reference agency does not offer any comment or advice and does not know how the information a lender has seen will affect the lending decision.

To view your personal credit information that lenders are currently basing their credit decisions on, apply now for a free online credit report from Experian, the UK’s largest credit reference agency. You will also receive a 30-day free trial to the CreditExpert Monitoring Service from Experian.

Short Term Export Finance Now Available To UK Exporters

In the current economic climate, UK exporters are looking for secure forms of payment from their overseas buyers, particularly those in emerging economies. One of the most secure payment mechanisms for foreign trade transactions is a confirmed letter of credit. Under this a bank in the UK guarantees payment to its exporting customer, provided documents stipulated in the letter of credit issued by the buyer’s overseas bank are presented to it. In this way, the UK exporter is able to eliminate the risk of non-payment by its buyer.

By sharing with banks the credit risks associated with confirmed letters of credit, ECGD aims to increase the amount of short-term export finance which the banking sector can make available to UK exporters. This is particularly important at a time when the overall risk appetite of the trade market has been reduced due to the recent difficulties in the financial sector.

To start with, five banks – Barclays, RBS, HSBC, Lloyds TSB and Standard Chartered – are supporting the scheme and will be making arrangements in the coming weeks to allow exporters to participate. It will cover 282 overseas banks in 36 export markets. More banks and export markets are expected to be added to the scheme.

UK Minister for Trade, Investment and Small Business Lord Davies of Abersoch said:

“I believe this new scheme could provide real help to UK exporters, particularly smaller companies exporting to emerging markets, which is where letters of credit are most used and where new opportunities can be found.

“Letters of credit are a very well established method of securing payment and an alternative to credit insurance. This scheme should increase banks’ capacity, and is an excellent step forward.”
ECGD will share up to 90% of the risk on individual letters of credit.