Secure Trust Bank — Momentum building in Q3

Secure Trust Bank (LSE: STB)

Last close As at 18/03/2024

GBP6.80

0.00 (0.00%)

Market capitalisation

GBP132m

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Research: Financials

Secure Trust Bank — Momentum building in Q3

In its Q3 trading update, Secure Trust Bank (STB) disclosed that it is experiencing robust loan growth. New business lending is now above pre-pandemic levels. STB’s core lending book in Q321 rose 3.3% quarter-on-quarter and 7% year-on-year. Motor finance new business grew 15% in just three months. New business lending in the quarter was up 20% and 59% on the previous quarter and 12 months ago. Net loan balances were £2,404m in Q321, which is in line with our end-FY21 forecast of £2,400m. We therefore believe that if STB maintains this growth pace, its loan book is likely to come in 3–5% above our year-end forecasts. Although there was no formal statement on either asset quality or interest margins, management stated that the bank is trading in line with its guidance from the July update. STB will have a capital markets day for analysts and institutional investors on 3 November 2021.

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Financials

Secure Trust Bank

Momentum building in Q3

Trading update

Banks

21 October 2021

Price

1,200p

Market cap

£223m

Net debt/cash (£m)

N/M

Shares in issue

18.6m

Free float

84.5%

Code

STB

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

Business description

Secure Trust Bank is a well-established specialist bank addressing niche markets within consumer and commercial banking.

Analysts

Pedro Fonseca

+44 (0)20 3077 5700

Andrew Mitchell

+44 (0)20 3681 2500

Secure Trust Bank is a research client of Edison Investment Research Limited

In its Q3 trading update, Secure Trust Bank (STB) disclosed that it is experiencing robust loan growth. New business lending is now above pre-pandemic levels. STB’s core lending book in Q321 rose 3.3% quarter-on-quarter and 7% year-on-year. Motor finance new business grew 15% in just three months. New business lending in the quarter was up 20% and 59% on the previous quarter and 12 months ago. Net loan balances were £2,404m in Q321, which is in line with our end-FY21 forecast of £2,400m. We therefore believe that if STB maintains this growth pace, its loan book is likely to come in 3–5% above our year-end forecasts. Although there was no formal statement on either asset quality or interest margins, management stated that the bank is trading in line with its guidance from the July update. STB will have a capital markets day for analysts and institutional investors on 3 November 2021.

Year end

Operating income (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/19

165.5

38.7

180.2

87.2

6.7

7.3

12/20

166.1

20.1

85.2

44.0

14.1

3.7

12/21e

164.6

47.9

211.9

53.0

5.7

4.4

12/22e

191.3

36.3

156.6

39.1

7.7

3.3

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Despite the good news, we maintain our estimates for now and our fair value remains unchanged at 2,234p per share using a net asset value (NAV) approach. The details of our valuation are set out in our outlook note, Good news as flagged, published on 11 August 2021. The 2,234p value implies an FY21e P/BV of 1.4x. STB is currently trading on a P/BV ratio of 0.75x.

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