Secure Trust Bank — In line, with good momentum

Secure Trust Bank (LSE: STB)

Currency in GBP

Last close As at 26/01/2023

GBP7.06

−10.00 (−1.40%)

Market capitalisation

GBP134m

Research: Financials

Secure Trust Bank — In line, with good momentum

In its FY22 post-close trading update, Secure Trust Bank (STB) announced that business has been trading in line with management expectations and with good momentum. Continuing profit before taxes and impairments was ‘significantly’ up, while its cost to income ratio ‘improved markedly’. Core loans rose by 19.1% y-o-y (we forecast 13%), with strongest growth in consumer finance as expected. New business lending did drop 11% y-o-y for Q422 as the bank tightened its lending criteria (as previously flagged by management) due to macroeconomic concerns. Loan arrears are back to pre-pandemic levels in vehicle finance and at record low levels in retail finance. This reflects STB’s repositioning to more prime segments and the de-risking of its loan book over the last few years. STB stated that its FY22 net interest margin percentage remained stable versus H122 despite rising funding costs (this matches our expectation).

Pedro Fonseca

Written by

Pedro Fonseca

Analyst, Financials

Secure-Trust-Bank_resized

Financials

Secure Trust Bank

In line, with good momentum

FY22 post-close update

Banks

19 January 2023

Price

728p

Market cap

£136m

Net cash/debt

N/M

Shares in issue

18.7m

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 FY22 post-close trading update, Secure Trust Bank (STB) announced that business has been trading in line with management expectations and with good momentum. Continuing profit before taxes and impairments was ‘significantly’ up, while its cost to income ratio ‘improved markedly’. Core loans rose by 19.1% y-o-y (we forecast 13%), with strongest growth in consumer finance as expected. New business lending did drop 11% y-o-y for Q422 as the bank tightened its lending criteria (as previously flagged by management) due to macroeconomic concerns. Loan arrears are back to pre-pandemic levels in vehicle finance and at record low levels in retail finance. This reflects STB’s repositioning to more prime segments and the de-risking of its loan book over the last few years. STB stated that its FY22 net interest margin percentage remained stable versus H122 despite rising funding costs (this matches our expectation).

Year end

Operating
income (£m)

PBT*

(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/20

166.1

19.1

81.0

44.0

9.0

6.0

12/21

164.5

58.8

254.0

61.1

2.9

8.4

12/22e

168.0

37.4

145.5

41.6

5.0

5.7

12/23e

184.6

41.6

164.2

40.4

4.4

5.5

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

STB disclosed that loan growth in commercial real estate was only marginal (we forecast 2% y-o-y for FY22) due to the ‘sharp’ increase in interest rates. The bank disclosed that the average loan to value was below 60% across the real estate loan book.

Management actions on costs and simplifying group structure have helped improve cost efficiency, although STB did not divulge numbers. We are forecasting a FY22 statutory cost to income of 56.1%, compared to 63.2% in FY21 and 57.0% in H122.

Management said the results show the bank’s ‘capability to capture the significant growth opportunities across our diversified specialist lending businesses’ and that it ‘will continue to manage our risk exposures appropriately during this period of uncertainty and remain confident in delivering our growth ambitions and medium-term targets.’

STB expects to announce its FY22 results on 30 March 2023.

We are maintaining our forecasts, outlined in our note published on 17 January, Revised forecasts reflect macro concern.

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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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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