Positive and ready for growth

Secure Trust Bank 1 April 2019 Update
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Secure Trust Bank

Positive and ready for growth

FY18 results

Banks

1 April 2019

Price

1440p

Market cap

£266m

Net debt/cash (£m)

N/M

Shares in issue

18.5m

Free float

84.5%

Code

STB

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

7.8

17.6

(23.3)

Rel (local)

5.3

8.6

(25.0)

52-week high/low

2085.0p

1157.5p

Business description

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%.

Next events

Interim results

July 2019

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

The FY18 results provide evidence that Secure Trust Bank’s (STB’s) strategy of combining de-risking and selective growth is working. Adjusted EPS rose 39% y-o-y while loan growth was a robust 27%; ROE increased from 8.9% to 13.1%. STB targets further strong growth in 2019 and is investing in areas such as a new motor finance platform, treasury and risk management to underpin this. STB has entered 2019 with good momentum, healthy capital and proven flexibility to adapt to opportunities and challenges that may occur in the macro and political environment.

Year end

Op Income (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/17

129.5

27.0

116.4

79.0

12.4

5.5

12/18

151.6

36.7

162.0

83.0

8.9

5.8

12/19e

167.8

42.0

183.7

87.2

7.8

6.1

12/20e

185.0

52.2

225.1

91.5

6.4

6.4

12/21e

203.5

60.1

254.9

92.6

5.6

6.4

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

Strong FY18 progress, slightly ahead of expectation

STB’s adjusted 2018 EPS rose 39% to 162p (our forecast: 154.8p). Pre-tax earnings rose similarly. The bank has succeeded in offsetting the tighter interest margins inherent in a lower-risk asset mix with a lower rate of impairments. The strong earnings growth has been effectively delivered with a lower risk profile. Overall loan growth was 26.9%, with similar increases in the retail and commercial divisions. Motor finance growth was only 1% y-o-y, but the bank has been changing the business to near-prime/prime and having stopped writing subprime is looking for strong growth here in 2020 and beyond.

Outlook: Positive momentum

STB has started the year with good momentum and sees the potential for further significant expansion in its chosen areas. There is capital headroom (CET1 13.8%) to accommodate this growth (we forecast loan growth of 20% in 2019). We expect loan growth across in all key areas in 2019, supported by investment in systems and people. We look for EPS growth of 13% in 2019, with some drag from rising costs reflecting investment to support longer-term growth. On a three-year view we see operating and financial leverage combining to allow the ROE to climb to over 18% by 2021 and three-year CAGR EPS growth of 15%. Aside from organic growth, the bank continues to review possible acquisitions with a disciplined application of price and business fit criteria,

Valuation: Deserves more than a 1.0x PNAV

We have made minor changes to our EPS estimates (-4.2% for 2019, +0.2% 2020) driven by operating costs and investments. This moves our dividend discount model (DDM) valuation down marginally from 2,443p to 2,428p. The bank trades on a 2019 PNAV of 1.0x yet its forecast returns on equity are well above our assumed cost of equity (10%). Our DDM fair value is equivalent to a 2019 PNAV of 1.8x.

FY18 earnings +39%

STB reported EPS growth of 39% y-o-y; we expected 33%. The pre-tax increase was similar at 36% and STB’s ROE rose from 8.9% in 2017 to 12.8% (as calculated by us; STB reported 13.1% in 2018. Exhibit 1 sets out the evolution of the profit and loss account, highlighting how lower impairments magnified 17% growth in operating income generating this high level of earnings growth.

Exhibit 1: Profit and loss

£m unless stated

2017

2018

% change

Gross interest income

141.3

169.2

19.7

Interest expense

(26.7)

(35.5)

33.0

Net interest income

114.6

133.7

16.7

Net fees & commissions

14.9

17.9

20.1

Total operating income

129.5

151.6

17.1

Operating expenses

(71.3)

(84.5)

18.5

Impairment charges on loans

(33.5)

(32.4)

-3.3

Other income

0.3

0.0

Pre-tax profit

25.0

34.7

38.8

Underlying pre-tax profit

27.0

36.7

35.9

Tax

(5.1)

(6.4)

25.5

Profit after tax - continuing operations

19.9

28.3

42.2

Profit after tax reported

23.8

28.3

18.9

Underlying profit after tax

21.5

29.9

39.2

Basic EPS (p)

107.7

153.2

42.2

Underlying EPS (p)

116.4

162.0

39.2

Dividend per share (p)

79.0

83.0

5.1

Source: Secure Trust Bank, Edison Investment Research

The bank was able to deliver on its strategic decision to reposition lending towards less risky segments while still pursuing strong growth. Some interest margin contraction was inevitable and it dropped from 7.7% (2017) to 7.4% (2018). But this was in line with our expectation and, crucially, STB was able to offset this with a lower impairment charge rate – down from 2.3% to 1.8%.

Exhibit 2: Customers, loans, deposits and key ratios

2017

2018

% change

Loan book

1,598

2,029

26.9

Deposits

1,483

1,848

24.6

Loan to deposit ratio (%)

107.8

109.8

Interest revenue as % average lending balances

9.8

9.0

Interest expense as % average deposits

-2.0

-2.1

Net interest margin (%)

7.7

7.4

Impairment charge % average loans

-2.3

-1.8

Cost/income ratio (%)

55.1

55.7

Underlying return on average equity (%)

8.9

12.8

Total risk exposure

1,446

1,825

26.2

CET1 ratio (%)

16.5

13.8

Leverage ratio (%)

12.3

10.0

Source: Secure Trust Bank, Edison Investment Research

The balance sheet expansion was significant and loans grew 27%, after allowing for IFRS adjustments to the opening balance (we expected 30%). Growth was evenly balanced between the retail and commercial lending divisions. Motor finance was the only segment where loan growth was subdued (+1% y-o-y) but this has to be seen in the context of the repositioning of the loan book out of sub-prime to near-prime/prime. Retail lending, invoice lending and real estate lending were the key drivers of growth.

New mortgage lending was halted in January 2019 pending an improvement in market conditions. Given this is a nascent business with a newly assembled team that is still seen as providing the group with a third leg alongside consumer and SME finance in the long term, we imagine this decision was carefully weighed. However, the price and risk in the marketplace was unattractive in management’s view and STB has the flexibility to be nimble about such decisions.

The resulting loan book profile is shown below. The two largest segments by some distance are retail (V12, point of sale) and real estate (70% for investment and 30% development).

Exhibit 3: Loan book breakdown 2018

Source: Secure Trust Bank, Edison Investment Research

Costs were kept in line with expectations and the cost-to-income ratio was only slightly higher at 55.7% despite ongoing investments in technology and expansion.

The 27% increase in loans and 26% in risk exposure inevitably affected the bank’s capital ratio. Consequentially, STB’s CET1 reduced from 16.5% in 2017 to 13.8% in 2018. This was better than we had forecast (13.2%). This was due to the bank delivering slightly higher earnings with slightly lower lending growth than we had forecast. More money for less risk is always welcome. As it stands, the CET1 is very comfortable and should allow for continued strong growth, albeit at a slower pace than 2018.

The bank has been successful in attracting deposits with its new internet platform. The company has been able to keep the loan to deposit ratio balanced (110% at 2018 year-end) and the funding appears to be at a reasonable and competitive cost.

Exhibits 4 and 5 show the gross yield and impairment (loan loss) charge for STB in recent periods. The key point is that that STB has been able to de-risk while protecting its profit margins. The gross yield net of the impairment loss has stabilised at around 7.5% in the last two years, which is a positive outcome given the greater resilience of the book and the increased macro uncertainty. It also shows STB has not been sacrificing margins for the sake of balance sheet expansion.

Exhibit 4: Gross lending yield and LLC rate (%)

Exhibit 5: Gross lending yield net of LLC rate (%)

Source: Secure Trust Bank, Edison Investment Research

Source: Secure Trust Bank, Edison Investment Research

Exhibit 4: Gross lending yield and LLC rate (%)

Source: Secure Trust Bank, Edison Investment Research

Exhibit 5: Gross lending yield net of LLC rate (%)

Source: Secure Trust Bank, Edison Investment Research

Outlook

The macro outlook in the UK is dominated by uncertainty surrounding Brexit and there is some evidence of a general slowdown. However, the economic growth outlook, while tepid, comes against a backdrop of very low unemployment and increasing above inflation wage rises which help lending asset quality. GDP growth for 2019–21 is expected to be in the range of 1.2–1.5% according to forecasters including the IMF, OECD, Bank of England and Office of Budget Responsibility.

We expect STB to continue to grow at a strong pace in 2019, albeit slower than in 2018. We forecast loan growth of 20% y-o-y, stronger in commercial finance (26% y-o-y) than retail lending (15%). We expect growth to be balanced between the two areas in 2020 and 2021.

We are expecting some cost investments and one-offs will push the cost/income ratio up from 55.7% in 2018 to 58% in 2019. This will offset some of the benefits from the lower loan loss charge and volume growth. Nevertheless, we still expect PBT on a continuing basis to rise from £34.7m in 2018 to £40.2m in 2019, which is a fairly significant increase.

Asset expansion and scale in lending should result in some gains from operating leverage and we forecast the cost to income ratio to come down to 56% in 2020 after the increase in 2019. We then expect this to decline further to 53% in 2021. We see pre-tax earnings on a continuing basis rising from £40m to £50m in 2020 and then to £60m in 2021.

We forecast the bank’s ROE will increase from 12.8% in 2018 to 18.7% in 2021. By 2021, the bank’s CET1 will have dropped to 11%, which, although an acceptable level of capital, would require growth beyond 2021 to be funded by self-generated capital.

STB reiterated in its annual report that it will continue to look for selective acquisitions at the right price and business fit, which gives it additional scale. Key target areas are invoice finance, retail finance and motor. STB is also open to deals in asset finance if the right opportunity appears, despite having withdrawn from fresh lending here due to concerns with pricing and risk.

The exhibit below summarises STB’s outlook comments by business area.

Exhibit 6: Outlook by segment

Segment

Comments

Business finance

Real estate

Remains cautious in the segment, expects to add to the sales team to help grow the business and increase diversification mix, both in sources and geography. Average LTV is 60%. Will continue to maintain bias for residential real estate investment finance (mix is 70/30% investment/development). More wary of central London house building finance. Development finance demand outside of London remains strong.

Commercial finance

A key area for growth, management wants to increase scale and continue to develop regional footprint. Will look at acquisition deals if economics and fit are right.

Consumer finance

Retail finance

Will continue to invest in systems capabilities, such as online account management services, to help keep the strong growth momentum in this area where STB is a significant player.

Motor finance

Management continues to be keen on prime and near prime product to which it has repositioned its product. It expects 2019 to be a transformational year as investments in a new platform will allow it to deliver a broad product to broker and dealer motor networks. It sees this as delivering growth, credit quality and stable earnings. Key products to be introduced will include dealer stock lending. Helped by new technology they expect to ‘gain market share and grow a sizeable business’ in the next three to five years.

Mortgages

Had previously announced it was ceasing to write new businesses as concerned about risk and price. Remains interested in inorganic opportunities that would provide the critical mass necessary to be profitable, if the economics of such a transaction were compelling. Factors that could make market conditions favourable enough for a return include introduction of the Minimum Requirement on own funds and Eligible Liabilities regime, the significant Basel capital reforms, the unwinding of the Term Funding Scheme, a tightening in the securitisation market, which is already affecting some nonbank lenders and the potential for FCA price intervention in the inert savings market.

Savings

Expect to launch new products such as a fixed-rate ISA, short/dated notice and instant access products to broaden the appeal to savers. Also considering offering business savings accounts.

Source: Secure Trust Bank, Edison Investment Research

Exhibit 7: Loan book estimates

£m

2017

2018

2019e

2020e

2021e

Motor vehicles

275

276

320

390

470

Retail finance

452

597

680

770

850

Debt management

-

32

45

60

80

Retail lending

727

906

1,045

1,220

1,400

Real estate finance

581

770

1,000

1,150

1,280

Asset finance

117

63

0

0

0

Commercial finance

127

195

290

380

480

Commercial finance

824

1,027

1,290

1,530

1,760

Mortgage lending

17

85

80

76

73

Other

31

11

13

15

17

Total lending

1,598

2,029

2,428

2,841

3,250

Retail lending growth (y-o-y%)

29.3

20.2

14.5

16.0

13.8

Commercial finance (y-o-y%)

30.6

24.7

25.6

18.6

15.0

Total lending growth (y-o-y%)

27.3

26.9

19.7

17.0

14.4

Source: Secure Trust Bank, Edison Investment Research

Estimates changes

We have made minor changes to our EPS figures (--4.2% for 2019, +0.2% for 2020) and are introducing 2021 forecasts. Earnings growth is still forecast to be strong; we expect a 13% increase in 2019, +23% in 2010 (helped by a falling cost to income ratio) and 13% in 2021 (further drop in cost to income ratio, but slower asset growth). The three-year CAGR EPS growth is 15%.

Exhibit 8: Estimate changes

Operating income (£m)

Normalised PBT (£m)

Normalised EPS (p)

Dividend (p)

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

2018

152.9

151.6

(0.9)

32.9

36.7

11.6

154.8

162.0

4.7

83

83.0

0.0

2019e

174.0

167.8

(3.6)

43.1

42.0

(2.6)

191.7

183.7

(4.2)

90.0

87.2

-3.2

2020e

196.4

185.0

(5.8)

52.7

52.2

(0.9)

224.6

225.1

0.2

100

91.5

-8.5

2021e

-

203.5

-

-

60.1

-

-

254.9

-

-

92.6

-

Source: Edison Investment Research. Note FY18 “new” figures are actual.

Valuation

STB is trading on a 2018 PNAV of 1.1x and delivered an ROE of 12.8% in 2018. This is modestly above the average in the selected peers in the table below. We do note that STB has the highest dividend yield of 6.4%. Furthermore, we expect the ROE to expand to 14.4% this year and then reach 18.7% by 2021. Such value-creating returns, clearly above the cost of equity, would merit a valuation in excess of 1.0x NAV.

STB also trades at a 2019e PE of 7.4x, a 20% discount compared to selected peers (average 8.8x). This is eye-catching because STB has a good prospective earnings growth profile. Furthermore, we believe credit should also be given for the risk reduction that has taken place and this is not merely a momentum play. The bank has the flexibility to adapt to both opportunities as well as adverse developments that could arise in the current uncertain macro and political environment.

We also use a DDM to consider the valuation. The minor changes in earnings due to have reduced the indicated fair value from 2,443p to 2,428p. This equivalent to a 2019 PNAV of 1.8x with the premium to NAV justified by the forecast returns above the COE of 10%.

Exhibit 9: Specialist lender comparative table

Price (p)

Market cap (£m)

2019e P/E (x)

Yield (%)

2018

ROE (%)

2018

Price to NAV (x)

Secure Trust Bank

1387.5

256.3

7.4

6.0

12.8

1.07

1PM

42

36.8

5.3

1.5

13.0

0.75

Close Brothers

1455

2202.0

10.6

4.3

16.3

1.64

CYBG

198.5

2837.7

7.9

1.6

10.6

0.55

Metrobank

758

738.4

16.0

0.0

2.9

0.53

OneSavings Bank

383.6

940.4

6.5

3.8

n.m

1.38

Paragon

435.8

1137.2

8.3

4.5

10.3

1.12

PCF Group

33

82.6

10.2

0.9

11.0

1.65

S&U

1820

218.6

5.5

3.7

16.7

1.41

Average

8.8

2.5

10.7

1.13

Source: Refinitiv, Edison Investment Research, company data. Note: Priced at 29 March 2019.

Exhibit 10 shows the recent share price performance of peers. STB has underperformed the averages over the one-year period and from 12-month highs but has noticeably outperformed over the year to date perhaps as recognition of the successful repositioning of the loan book grows.

Exhibit 10: Recent share price performance in context

1 Month

3 Months

1 Year

YTD

From 12m high

Secure Trust Bank

7.8

17.6

-23.3

16.6

-34.6

1PM

-7.7

5.0

-10.2

2.4

-33.1

Close Brothers

-3.6

1.6

1.4

1.0

-13.5

CYBG

1.1

6.7

-32.6

9.5

-45.9

Metrobank

-14.8

-55.7

-78.4

-55.2

-78.8

OneSavings Bank

-2.2

11.0

2.8

9.6

-15.4

Paragon

0.3

10.6

-7.4

12.9

-22.0

PCF Group

0.0

-9.4

3.4

-8.6

-24.8

S&U

-10.6

-11.2

-24.2

-14.6

-34.8

Average

-4.7

-5.2

-18.1

-5.4

-33.5

Source: Bloomberg, Edison Investment Research. Note: Priced at 29 March 2019.

Exhibit 11: Financial summary  

Year end December

2016

2017

2018

2019e

2020e

2021e

£m except where stated

Profit and loss

Net interest income

92.5

114.6

133.7

148.5

162.1

177.8

Net commission income

14.5

14.9

17.9

19.3

22.8

25.7

Total operating income

107.0

129.5

151.6

167.8

185.0

203.5

Total G&A expenses (exc non-recurring items below)

(64.3)

(71.3)

(84.5)

(97.3)

(103.5)

(110.9)

Operating profit pre impairments & exceptionals

42.7

58.2

67.1

70.5

81.5

92.7

Impairment charges on loans

(23.3)

(33.5)

(32.4)

(30.3)

(31.2)

(32.5)

Other income

0.0

0.3

0.0

0.0

0.0

0.0

Operating profit post impairments

19.4

25.0

34.7

40.2

50.3

60.1

Non-recurring items

0.0

0.0

0.0

0.0

0.0

0.0

Pre tax profit - continuing basis

19.4

25.0

34.7

40.2

50.3

60.1

CorporationTax

(5.2)

(5.1)

(6.4)

(6.8)

(8.5)

(10.2)

Tax rate

26.8%

20.4%

18.4%

17.0%

17.0%

17.0%

Bank tax surcharge

0.0

0.0

0.0

(1.2)

(2.0)

(2.8)

Profit after tax - continuing basis

14.2

19.9

28.3

32.1

39.7

47.1

Discontinued business

123.3

3.9

0.0

0.0

0.0

0.0

(Loss)/profit for year

137.5

23.8

28.3

32.1

39.7

47.1

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

Net income attributable to equity shareholders

137.5

23.8

28.3

32.1

39.7

47.1

Company reported pre-tax earnings adjustments

7.9

2.0

2.0

1.8

1.9

0.0

Reported underlying pre-tax earnings (ex discontinued 2015/16)

27.3

27.0

36.7

42.0

52.2

60.1

Reported underlying earnings after tax

20.6

21.5

29.9

33.9

41.6

47.1

Average basic number of shares in issue (m)

18.5

18.5

18.5

18.5

18.5

18.5

Average diluted number of shares in issue (m)

18.6

18.6

18.6

18.6

18.6

18.6

Reported diluted EPS (p)

77.3

107.0

152.2

172.9

213.6

253.4

Underlying diluted EPS (p)

113.0

116.4

162.0

183.7

225.1

254.9

Ordinary DPS (p)

75.0

79.0

83.0

87.2

91.5

92.6

Special DPS (p)

165.0

0.0

0.0

0.0

0.0

0.0

Net interest/average loans

8.15%

7.72%

7.37%

6.67%

6.15%

5.84%

Impairments/average loans

2.04%

2.30%

1.79%

1.36%

1.18%

1.07%

Cost income ratio

60.1%

55.1%

55.7%

58.0%

56.0%

54.5%

Balance sheet

Net customer loans

1,321.0

1,598.3

2,028.9

2,428.5

2,841.4

3,249.6

Other assets

189.0

293.3

415.4

428.6

443.5

485.6

Total assets

1,510.0

1,891.6

2,444.3

2,857.0

3,284.9

3,735.2

Total customer deposits

1,151.8

1,483.2

1,847.7

2,248.6

2,583.1

3,008.9

Other liabilities

122.2

159.3

359.5

354.7

424.6

411.7

Total liabilities

1,274.0

1,642.5

2,207.2

2,603.3

3,007.7

3,420.6

Net assets

236.0

249.1

237.1

253.7

277.2

314.6

Minorities

0.0

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

236.0

249.1

237.1

253.7

277.2

314.6

Reconciliation of movement in equity

Opening shareholders' equity

141.2

236.0

249.1

237.1

253.7

277.2

Profit in period

137.5

23.8

28.1

32.1

39.7

54.5

Other comprehensive income

(1.8)

2.9

(25.8)

0.0

0.0

0.0

Ordinary dividends

(13.1)

(14.0)

(14.8)

(15.5)

(16.3)

(17.1)

Special dividend

(30.0)

0.0

0.0

0.0

0.0

0.0

Share based payments

0.2

0.4

0.5

0.0

0.0

0.0

Issue of shares

2.0

0.0

0.0

0.0

0.0

0.0

Share issuance costs

0.0

0.0

0.0

0.0

0.0

0.0

Closing shareholders' equity

236.0

249.1

237.1

253.7

277.2

314.6

Other selected data and ratios

Period end shares in issue (m)

18.5

18.5

18.5

18.5

18.5

18.5

NAV per share (p)

1,277

1,348

1,283

1,373

1,500

1,703

Tangible NAV per share (p)

1,229

1,292

1,230

1,298

1,425

1,638

Return on average equity

72.9%

9.8%

11.6%

13.1%

15.0%

15.9%

Normalised return on average equity

9.9%

8.9%

12.8%

14.4%

17.1%

18.7%

Return on average TNAV

10.3%

9.3%

13.4%

15.1%

18.0%

19.8%

Average loans

1,134.6

1,484.6

1,863.7

2,228.7

2,430.1

2,635.0

Average deposits

1,067.5

1,321.7

1,655.4

2,085.3

2,264.9

2,427.8

Loans/deposits

114.7%

107.8%

109.8%

108.0%

110.0%

108.0%

Risk exposure

1,264.0

1,446.1

1,824.6

2,175.8

2,522.0

2,878.9

Common equity tier 1 ratio

18.0%

16.5%

13.8%

12.0%

11.1%

11.0%

Source: Secure Trust Bank data and Edison Investment Research. Note: profit on sale of ELG in April 2016 is included with the discontinued business line for FY16.

General disclaimer and copyright

This report has been commissioned by Secure Trust Bank and prepared and issued by Edison, in consideration of a fee payable by Secure Trust Bank. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Secure Trust Bank and prepared and issued by Edison, in consideration of a fee payable by Secure Trust Bank. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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