Secure Trust Bank is a well-established specialist bank, addressing niche markets within consumer and commercial banking. It is launching a non-standard mortgage business.
Secure Trust Bank (STB) reported H119 adjusted pre-tax earnings up 14% y-o-y driven by volume growth and lower impairment rates. With a diversified lending model it has shown the ability to shift asset allocation significantly, de-risking and avoiding price pressures prevailing in some lending asset classes. By putting the brakes on early, STB is now reaping the rewards, with good profitability and the flexibility to adjust to macro and political changes. We have not made changes to our forecasts or our DDM-derived fair value (2,428p per share). We forecast STB to continue to deliver returns considerably above its 10% COE. We see ROE reaching 18.7% by 2021. As such, a significant premium to the current trading P/BV of 1.0x seems justified in our opinion. Our DDM fair value is equivalent to a 2019 P/NAV of 1.8x.
STB is targeting further strong growth in 2019 and is investing in areas such as a new motor finance platform, treasury and risk management to underpin this. The benefits of this are expected to flow through over a number of years. The bank’s proven flexibility should help it adapt to opportunities and challenges that may occur in the macro and political environment. Management remains open to M&A opportunities should they arise.