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’s (STB’s) trading update for Q319 had a reassuring tone. The business trends and ‘overall results are in line with management expectations’. Management noted that demand slowed in September, but this is not a surprise given Brexit deadline concerns. STB has been in de-risking mode for several quarters and has been repositioning its loan book in anticipation of economic and political uncertainties. The short duration of its loan book also allows it to respond quickly as the lending environment changes. We are not making changes to forecasts or our fair value of 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 are expected to flow through over a number of years. STB’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.