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. Former parent Arbuthnot Banking Group’s shareholding is now less than 20%.
Secure Trust Bank’s (STB) pre-close trading update indicates that FY19 results should be in line with expectations, despite the economic slowdown dampening loan demand in the second half of 2019. STB highlighted its strong control over risk while interest margins have been stable. The bank is cautiously optimistic about 2020 and is well positioned, with healthy capital, good liquidity and new business pipelines. STB does not envisage material changes to 2020 guidance, and we are maintaining our estimates and 2,428p per share valuation. 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.
While the general elections vote has cleared some uncertainty, some question marks regarding the UK economy in the short and medium term still remain. STB is targeting further strong growth in 2020, while 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.