Secure Trust Bank — One-off impairment masks underlying PBT beat

Secure Trust Bank (LSE: STB)

Last close As at 22/06/2024

GBP7.96

−13.00 (−1.61%)

Market capitalisation

GBP152m

More on this equity

Research: Financials

Secure Trust Bank — One-off impairment masks underlying PBT beat

In its H123 results, Secure Trust Bank (STB) delivered an 11% y o y increase in operating income, overcoming margin pressure on rising interest rates. However, PBT was £16.5m, 4% lower than in H122 as the bank incurred a one-off impairment charge of £7.0m stemming from a long-standing debt case in Commercial Finance. Excluding this charge, PBT was £23.5m, which implies a 6% beat on our estimates on an annualised basis. Across the group, underlying impairments are resilient, especially in Vehicle Finance where impairments fell to 2.4% (H122: 8.0%) as lending shifted to prime borrowers. We have increased our FY23 and FY24 continuing PBT forecasts to £45m and £55m respectively, leaving the stock trading at P/E ratios of only 4.0x in FY23 and 3.1x in FY24.

Written by

Robert Murphy

Managing Director, Financials and Investment Trusts

Secure-Trust-Bank_resized

Financials

Secure Trust Bank

One-off impairment masks underlying PBT beat

H123 results

Banks

4 September 2023

Price

666p

Market cap

£125m

Common equity tier 1 (CET1) ratio

13.0%

Shares in issue

18.7m

Free float

91%

Code

STB

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

16.8

4.7

(28.9)

Rel (local)

20.0

5.3

(31.4)

52-week high/low

1,000p

550p

Business description

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

Next events

Capital markets day

8 November 2023

Analysts

Rob Murphy

+44 (0)20 3077 5700

Armando Hoxha

+44 (0)20 3077 5700

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

In its H123 results, Secure Trust Bank (STB) delivered an 11% yoy increase in operating income, overcoming margin pressure on rising interest rates. However, PBT was £16.5m, 4% lower than in H122 as the bank incurred a one-off impairment charge of £7.0m stemming from a long-standing debt case in Commercial Finance. Excluding this charge, PBT was £23.5m, which implies a 6% beat on our estimates on an annualised basis. Across the group, underlying impairments are resilient, especially in Vehicle Finance where impairments fell to 2.4% (H122: 8.0%) as lending shifted to prime borrowers. We have increased our FY23 and FY24 continuing PBT forecasts to £45m and £55m respectively, leaving the stock trading at P/E ratios of only 4.0x in FY23 and 3.1x in FY24.

Year end

Operating income (£m)

PBT*
(£m)

EPS**
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/21

148.9

55.9

239.4

61.1

2.8

9.2

12/22

169.6

39.0

174.7

45.1

3.8

6.8

12/23e

188.5

45.0

168.0

42.0

4.0

6.3

12/24e

221.8

55.0

214.9

53.7

3.1

8.1

Note: *PBT from continuing operations. **Fully diluted.

Record new business lending

Lending balances in H123 reached £3.2bn, a sizeable 15% uplift from the £2.8bn reported in H122. Record new business lending of £1.15bn underpinned growth in H123 (H122: £1.12bn). Growth was mainly driven by Consumer Finance (made up of Vehicle Finance and Retail Finance) as STB continued to focus on increasing its exposure to prime, higher credit quality lending. Despite interest rates putting pressure on the real estate market, Real Estate Finance lending was robust, with loan balances growing by 7% over H122. New business dramatically slowed in Commercial Finance as interest rates began to affect small and medium-sized enterprises (SMEs). Earnings per share fell to 59.4p (H122: 102.4p) and a dividend of 16.0p/share was declared (H122: 16.0p).

PBT estimates raised for both FY23 and FY24

Although the macroeconomic climate is a challenge, management remains optimistic in its ability to monetise efficiency initiatives, keep impairments stable, drive lending growth and improve profitability in H223 and FY24. On promising H123 results and management’s confident outlook, we have increased our continuing PBT forecasts to £45m in FY23 and £55m in FY24.

Valuation: Undervalued based on peer comparison

On our FY23 estimates, STB is trading at a diluted price to book value (P/BV) of 0.36x and a P/E of only 4.0x. Based on peer valuation multiples, the bank should be trading closer to c 0.6x P/BV or c 1,000p/share, which implies an upside of c 50%. Management targets a return on equity of 14–16% and lending book growth of 15% per year in the medium term. Contingent on achieving these targets, STB should trade closer to book value.

H123 results analysis

The shift towards focusing on prime and near-prime products, as well as growing its distribution network, has enabled STB to drive strong originations and grow lending balances while keeping arrears at subdued levels.

In H123, STB grew its total lending balances by 15% compared to H122 (see Exhibit 1). New business in Commercial Finance slowed down significantly despite lending balances being up from H122, as we enter an elevated interest rate environment that is curbing business activity. The group recognised a £7.0m impairment charge, which originated from a long-standing debt issue. On the earnings call, management reassured investors that there are no other similar cases in the current loan book. Overall, PBT was 4% lower than in H122 at £16.5m. Excluding the impairment charge, it would have been £23.5m. On an annualised basis, this implies PBT would be £47m in FY23, 6% above our previous estimate.

Consumer Finance

In Retail Finance, new business grew 14.7% to £614m compared to H122, while lending balances increased 28.8% to £1,180m and generated revenues of £49.2m in H123 versus £35.9m in H122. Growth was underpinned by interest free products in furniture and jewellery, which attracts lower-risk customers but at lower net interest margins. Interest free lending now accounts for 86.2% of the lending book (FY22: 85.1%). The shift to prime lending has also allowed the group to keep impairments at stable levels even as lending continues to grow. Cost of risk for the period was 1.6% versus 1.4% in H122. Arrears for Retail Finance continues to remain low at 0.8%.

Additionally, AppToPay was introduced to a number of select retailers, which has marked STB’s entrance into the buy now, pay later (BNPL) market, where it expects to grow its market share. The app has been fully integrated into the suite of products offered by Retail Finance so it requires no IT integration by its retail partners. The group continues to leverage its retailer network to drive growth, which now stands at over 1,400 partnerships.

Vehicle Finance generated £250m in new business lending, up 41.7% in H122, achieving lending balances of £440m, an increase of 32.4% versus this time last year. As a result, the division generated a 30% increase in revenues to £29.0m.

Having tightened credit standards in 2022 and increased its prime lending activities, the cost of risk fell dramatically to 2.4% compared to 8.0% in H122. IFRS 9 provisioning was also a factor as the strong volume growth last year required upfront reserving. Arrears for near prime lending continue to be stable and has trended downwards towards 12.4% (FY22: 14.4%), while total arrears for vehicle finance – near prime and prime combined – dropped to 10% from 12.2% at the end of December. We highlight that the shift to more prime lending has resulted in lower net revenue margins to 11.4% compared to 12.9% in H122.

In common with its Retail Finance division, Vehicle Finance has a strong dealer network, which has increased from 560 in FY22 to 680 at H123.

Business Finance

In Real Estate Finance, new business lending was £252m, a modest 4.4% increase from H122. Lending balances grew respectably by 6.9% to £1,222m. but revenues jumped 30% to £35.1m on higher lending margins as STB is beginning to reprice the book against a headwind of rising UK interest rates. By the end of H123, 82% of the loan book was comprised of residential investment financing (FY22: 85%). With an average loan-to-value (LTV) ratio of 56.4%, the bank retains a good cushion against credit loss even if defaults rise should the economy weaken significantly.

Modelling provisions under IFRS 9, STB has increased its provisioning in stage 3 loans to £3.6m (H122: £2.2m). Consequently, impairment charges increased to £2.2m (H122: £0.2m) resulting in cost of risk rising to 0.4% from 0.0% in H122.

In Commercial Finance, rising interest rates, increasing cost pressures and slowing activity have affected volumes in the SME market. New business lending experienced a significant decline in comparison with H122, falling to £31.4m from £136m – a 76.9% decrease. Lending balances decreased at a slower rate to £316m from £360m in H122. However, total revenues increased 45.6% to £18m as revenue margins increased to 7.3% from 5.9% in H122. The rising yield is a result of the lagged effect of the bank passing previous interest rate rises (which had initially squeezed margins) onto borrowers. We also note that lending balances from the government Coronavirus Business Interruption Loan Scheme, Coronavirus Larger Business Interruption Loan Scheme and Recovery Loan Scheme are now running off, with the loan schemes totalling only £20m (FY22: £29m). This exposure has always been very low at STB and speaks to the company’s strong risk management culture.

In the half, the group took an impairment charge of £7.0m mainly related to a material loss of £7.2m on a long-running debt case that had not been previously included in Stage 3 loans in expectation of sufficient recovery. Management highlighted that this was a unique occurrence, and it does not expect such events to occur within the current lending book. Consequently, impairment charges for Commercial Finance increased to 4.1% (H122: 0.0%). Excluding the unique impairment charge, total write offs between 2015 and 2023 have been only 0.04% of average lending balances. Including the £7.2m charge, the average charge over the same period would still only be 0.6%.

Below, Exhibit 1 summarises the lending and impairment performance explained in the text above.

Exhibit 1: Loan and impairment analysis – H123 versus H122

(£m unless stated otherwise)

H122

H123

Change*

Real Estate Finance

1,142.6

1,221.8

6.9%

Commercial Finance

359.8

316.4

(12.1%)

Business Finance

1,502.4

1,538.2

2.4%

Retail Finance

916.2

1,179.9

28.8%

Vehicle Finance

332.6

440.4

32.4%

Consumer Finance

1,248.8

1,620.3

29.7%

Total lending balance

2,751.2

3,158.5

14.8%

Impairments

Real Estate Finance

0.0%

0.4%

0.4pp

Commercial Finance

0.0%

4.1%

4.1pp

Business Finance

0.0%

1.2%

1.2pp

Retail Finance

1.4%

1.6%

0.2pp

Vehicle Finance

8.0%

2.4%

(5.6)pp

Consumer Finance

3.2%

1.8%

(1.4)pp

Total impairments

1.3%

1.5%

0.2pp

Source: Secure Trust Bank, Edison Investment Research

Profit and loss analysis

On the back of increased lending balances and previous interest rate rises, the bank generated interest income of £139m, up 53% from H122 (see Exhibit 2). Interest expenses, however, grew at a much steeper rate to £57.8m from £17.5m as the bank passed on higher rates to savers and also bore the costs of the £90m Tier 2 callable bond it issued earlier in the year. The bond pays a 13% fixed coupon and matures in August 2033. The bond issuance impacted the net interest margin by 20bp, but provides capital to facilitate growth in the business. Despite interest expense pressure, operating income grew 11% from H122 to £89.1m.

Operating expenses increased 9.7% to £50.7m from £47.0m in H122, broadly in line with the rate of inflation. STB continues to work on its cost efficiency programme, Project Fusion, which is on track to deliver c £4m in annualised savings by the end of the year and had achieved £2m in H123. The bank aims for a cost income ratio of less than 50% in the medium term. In H123 the cost income ratio was 56.9% and we forecast 54% at the end of FY23 including the remainder of Project Fusion which will fully annualise in 2024.

The one-off £7.0m charge in Commercial Finance mentioned earlier took impairments to £23m in the half, 28% larger than in H122. Excluding the charge, impairments would have been £16.0m, 11% lower than H122 despite a higher lending balance – a product of focusing on prime, higher credit quality consumers. The one-off charge increased group cost of risk to 1.5% (H122: 1.3%).

PBT was £16.5m, slightly below the £17.1m reported in H122. Stripping out the impairment charge, PBT would have been £23.5m. Annualising this, the bank would be on track for £47m in FY23, 6% above our previous estimate of £44.4m.

As expected, the bank also recognised a £1.5m loss associated with the disposal of the Debt Managers Services business. A further final c £0.5m loss is expected in the year.

Profit for the year was reported 42% lower than H122 at £11.1m. We do highlight that in H122, the group benefited from an initial profit of £6.1m from the disposal of Debt Managers Services, which influenced the bottom line. As a result, earnings per share was 42% lower at 59.4p/share (H122: 102.4p/share).

The board has approved an interim dividend of 16p/share, in line with H122 and representing a payout ratio of 27%, to be paid on 28 September 2023. In the outlook, management states it is optimistic that profitability will improve strongly in the second half of the year and into FY24.

Exhibit 2: Profit and loss account

(£m unless stated otherwise)

H122

H222

H123

H123 vs H122

Interest income

90.6

112.4

138.8

53%

Interest expense

(17.5)

(32.9)

(57.8)

230%

Net interest income

73.1

79.5

81.0

11%

Fee & commission income

8.1

9.3

8.1

0%

Fee & commission expense

(0.2)

(0.2)

0.0

(100%)

Operating income

81.0

88.6

89.1

11%

Operating expenses

(46.2)

(47.0)

(50.7)

10%

Impairment charges on loans

(17.9)

(20.3)

(23.0)

28%

Gains on modification of financial assets

0.7

0.4

0.2

(71%)

Fair value gains/(losses) on financial instruments

(0.5)

0.2

0.9

(280%)

Other income/(losses)

0.0

0.0

0.9

Profit before income tax from continuing operations

17.1

21.9

16.5

(4%)

Income tax expense

(4.2)

(5.2)

(4.2)

0%

Profit for the year from continuing operations

12.9

16.7

12.3

(5%)

Profit for the year from discontinued operations

7.6

(2.6)

(1.5)

(120%)

Tax on discontinued operations

(1.4)

0.5

0.3

(121%)

Profit for the year

19.1

14.6

11.1

(42%)

Earnings per share (p)

102.4

78.1

59.4

(42%)

Diluted earnings per share (p)

99.1

75.6

57.9

(42%)

Dividend per share (p)

16.0

29.1

16.0

0%

Key ratios

Common equity tier 1 (CET1) ratio

14.0%

14.0%

13.0%

Return on equity (ROE)

12.5%

9.0%

6.8%

Net interest margin (NIM)

5.7%

5.7%

5.4%

Cost to income ratio (CIR)

57.0%

53.0%

56.9%

Source: Secure Trust Bank, Edison Investment Research

Estimates upgraded

Loan and impairment forecasts

We have significantly increased our lending estimates for both Vehicle and Retail Finance. For Vehicle Finance, reported lending balances in H123 were £440m, 5% higher than our FY23 estimate of £420m. Since demand for vehicles (and vehicle finance) continues to be elevated, and STB’s distribution network has grown, we have increased our estimates by 19% and 28% for FY23 and FY24, respectively. Similarly, Retail Finance lending was strong in H123, with lending balances of £1.2bn and already reaching our FY23 estimate of £1.2bn. As the bank expands its interest free lending operations and continues to leverage its retail network and grow market share, we expect that lending growth will be strong throughout the rest of FY23 and into FY24. Therefore, we have increased our lending balance estimates by 7% and 10% for FY23 and FY24.

After robust lending in H123 in Real Estate Finance, we have increased our lending balances by 7% in FY23 and 5% in FY24. We expect this trend to continue into the second half, but looking ahead we anticipate paydowns on loans to increase given indicators of forward inflation and interest rates so have conservatively kept balances flat in FY24.

On the other hand, Commercial Finance lending slowed down in H123 and the group remains focused on managing its existing customer base effectively. In anticipation of a continuing difficult environment for SMEs, we have taken into account the weaker H123 volumes and erred on the cautious side in our estimates for commercial lending. Therefore, we have lowered our lending balance estimates for FY23 and FY24 by 10% and 9% respectively in Commercial Finance.

Consequently, our estimates for total balances in FY23 and FY24 have risen to £3.4bn and £3.7bn for FY23 and FY24, increases of 6% and 8% from our previous estimates of £3.2bn and £3.5bn. We have provided a summary of our lending balance estimates in Exhibit 3 below.

Exhibit 3: Lending balance estimates

£m

Previous FY23e

Previous FY24e

New
FY23e

New
FY24e

Change in FY23e

Change in FY24e

Real Estate Finance

1,140

1,165

1,220

1,220

7.0%

4.7%

Commercial Finance

400

440

360

400

(10.0%)

(9.1%)

Business Finance

1,540

1,605

1,580

1,620

2.6%

0.9%

Vehicle Finance

420

490

500

625

19.0%

27.6%

Retail Finance

1,220

1,360

1,300

1,500

6.6%

10.3%

Consumer Finance

1,640

1,850

1,800

2,125

9.8%

14.9%

Total

3,180

3,455

3,380

3,745

6.3%

8.4%

Source: Edison Investment Research

Credit quality within the total loan book continues to be robust. Although the one-off charge in Commercial Finance materially affected profitability, management reiterated that it was a unique occurrence and is confident that no other situations are present in the current loan book. Additionally, despite market interest rate increases, the Real Estate Finance division, has only witnessed a very small number of clients in an active workout situation. STB can also work with customers on agreeing revisions to interest cover covenants, where deemed appropriate.

Moreover, in Vehicle and Retail Finance, impairments and arrears continue to be stable. Arrears in Retail Finance were stable at 0.8% (FY22: 0.8%) while the percentage of arrears in Vehicle Finance have reduced materially since FY22. In the near prime book, arrears dropped to12.4% from 14.4% in FY22, with total arrears in the Vehicle loan book falling to 10.0% from 12.2% in FY22.

In our estimates for the consolidated group in FY23, we have held impairments at 1.4% (see Exhibit 4). We have increased Real Estate impairments by 0.2 percentage points in FY23 to reflect the increase in impairments recorded in H123 but have left our FY24 estimate unchanged. In Commercial Finance, our impairment estimate is now 2.2% as we reflect the one-off impairment charge recorded in H123. Vehicle Finance impairments were particularly robust in H123, so we have reduced our impairment estimates for FY23 and FY24 by 3.1 and 1.1 percentage points, respectively. As the Vehicle loan book continues to incorporate more prime lending, we expect impairment levels in the segment to remain resilient. In Retail Finance, impairments were 1.6%, in line with our full year expectations. We expect impairment here to remain broadly stable with a slight increase of 0.1% in 2024.

In absolute terms, total impairments for FY23 are now reduced marginally by 3.7% to £42.8m because of the downward revision in Vehicle Finance, whereas we forecast an increase of 6.5% in FY24 to £51.5m as we have assumed a higher overall loan book than previously estimated.

Exhibit 4: Loan impairments estimate changes

Old FY23e

Old FY24e

New FY23e

New FY24e

Change in FY23e* (pp)

Change in FY24e* (pp)

Real Estate Finance

0.2%

0.2%

0.4%

0.2%

0.2

0.0

Commercial Finance

0.3%

0.3%

2.2%

0.3%

1.9

0.1

Vehicle Finance

5.8%

5.6%

2.8%

4.5%

(3.1)

(1.1)

Retail Finance

1.6%

1.6%

1.6%

1.7%

(0.1)

0.1

Total loan impairments

1.4%

1.4%

1.4%

1.4%

0.0

0.0

Impairments (£m)

44.5

48.4

42.8

51.5

(3.7%)

6.5%

Source: Edison Investment Research. Note: *Measured in percentage points excluding impairments calculation.

Financial estimates

Despite lower earnings because of the one-off charge and the headwind in FY23 interest expense from cost of the Tier 2 bond issuance, the outlook for STB is positive into H223. Lending growth remains strong and yields earned on loans should rise notwithstanding the shift to prime lending as rate increases are increasingly passed through to borrowers. Impairments continue to be stable and cost saving initiatives such as Project Fusion should be tailwinds to stronger profitability.

Following the upward revisions to our lending balance estimates, our forecasts for both FY23 and FY24 have increased (see Exhibit 5). We have increased our continuing PBT estimate by 1.2% in FY23 despite the H123 miss (due to the one-off impairment charge). Had the charge not occurred, annualised PBT would be £47m, above both our old and new estimates. We expect PBT growth to accelerate into the second half of the year with net interest margin expanding to 5.5% from 5.3% in H1. In FY24, we anticipate 11% lending growth, broadly stable impairment (on the continuing shift towards more prime lending) and an expanding net interest margin to 5.7% as the book reprices and the mix shifts towards higher rate Consumer Finance. Consequently, we have increased our FY24 operating income forecast by 8.3% to £221.8m.

Management reiterated its plans to reduce the cost income ratio and maintain good margins. Against an inflationary backdrop, the cost income ratio only moved up 1bp to 56.9% in H123 (H122: 57.0%). Alongside this, the bank is also expecting to deliver on the c £4m in annualised savings in the year from Project Fusion, having delivered half of this on a run-rate basis in H123. Taking everything into account, we have forecast a 5.7% increase in continuing PBT: we anticipate the cost income ratio to continue improving (we forecast 54% in FY23 and 52% in FY24) and net interest margin to gradually increase to 5.4% in FY23 and 5.7% in FY24, resulting from a higher weighting towards the Consumer Finance book and previous interest rate rises being passed through to loan yields.

Exhibit 5: Estimate changes

FY23e

FY24e

Old

New

Change

Old

New

Change

Operating income (£m)

189.3

188.5

(0.4%)

204.8

221.8

8.3%

Continuing PBT (£m)

44.4

45.0

1.3%

52.0

55.0

5.7%

Diluted EPS (p)

167.0

168.0

0.6%

200.1

214.9

7.4%

DPS (p)

41.7

42.0

0.6%

50.0

53.8

7.4%

Source: Edison Investment Research

Valuation

In Exhibit 6 we compare STB to a peer group of mid-sized / specialist lenders in the UK. We observe that, on a calendarized basis, STB trades at a significantly lower 2023 P/E ratio despite having a competitive return on equity (ROE). Additionally, in 2024, with an ROE only 1.2 percentage points lower than the peer average, STB trades at a P/E ratio 48% below the average. Alongside this, STB offers a good current dividend yield of 6.3%, but is below the average of 8.1% as it is retaining more capital for growth.

Exhibit 6: Peer group table

Price
(p)

Market
cap (£m)

P/E CY23e (x)

P/E CY24e (x)

ROE CY23e (%)

ROE CY24e (%)

Dividend yield (%)

Close Brothers

822

1,237

N/A

7.0

7.3

10.9

8.0

Virgin Money

163

2,216

5.3

4.8

7.3

8.0

6.1

Metrobank

103

178

16.5

9.4

1.8

2.7

N/A

OneSavings Bank

342

1,362

4.7

3.4

15.6

19.9

8.9

Paragon

523

1,144

6.1

5.8

14.1

13.9

5.5

Vanquis

106

273

7.4

3.1

8.8

17.2

14.4

S&U

2,260

282

8.7

7.7

13.2

13.9

5.9

Secure Trust Bank

666

125

4.0

3.1

9.5

11.2

6.3

Peer average

956

8.1

5.9

9.7

12.4

8.1

Source: Refinitiv, Edison Investment Research. Note: P/E and ROE are calendarized and we use our own estimates for S&U and Secure Trust Bank. Priced 4 September 2023.

Using our assumptions for FY23, STB is currently trading at a diluted P/BV of 0.36x (see Exhibit 7) and P/E of 4.0x. Based on our peer comparison chart, where we use calendarised 2023 P/BV and ROE, STB looks undervalued. On a peer valuation comparison, STB should be trading closer to c 0.6x P/BV or c 1,000p/share. This implies an upside of c 50% from the current share price. Management targets an ROE of 14–16% in the medium term and should this come to fruition, we would expect STB to trade closer to book value.

Exhibit 7: Peer group P/BV multiples versus ROE based on FY23 estimates (annualised)

Source: Refinitiv, Edison Investment Research. Note: We use our own estimates for S&U (SUS) and STB. MTRO (Metro Bank); VMUK (Virgin Money UK); CBRO (Close Brothers Group); PAGPA (Paragon Banking Group); VANQ (Vanquis Banking Group); OSBO (OneSavings Bank). Priced 4 September 2023.

Exhibit 8: Financial summary

Year-end December (£m unless stated otherwise)

2019

2020

2021

2022

2023e

2024e

Profit and loss

Net interest income

145.4

150.9

136.2

152.6

170.4

202.4

Net commission income

20.1

15.2

12.7

17.0

18.1

19.4

Total operating income

165.5

166.1

148.9

169.6

188.5

221.8

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

(94.2)

(92.6)

(89.4)

(93.2)

(101.8)

(115.3)

Operating profit pre impairments & exceptionals

71.3

73.5

59.5

76.4

86.7

106.5

Impairment charges on loans

(32.6)

(51.3)

(5.0)

(38.2)

(42.8)

(51.5)

Losses on modification of financial assets

0.0

(3.1)

1.5

1.1

0.2

0.0

Non-recurring items and other income

0.0

0.0

(0.1)

(0.3)

0.9

0.0

PBT – continuing basis

38.7

19.1

55.9

39.0

45.0

55.0

Corporation taxes

(7.6)

(3.7)

(10.4)

(9.4)

(11.2)

(13.7)

Profit after tax - continuing basis

31.1

15.4

45.5

29.6

33.7

41.2

PBT - discontinued businesses

0.0

0.0

0.1

5.0

(2.0)

0.0

Tax on discontinued businesses

0.0

0.0

0.0

(0.9)

0.5

0.0

PBT - total reported

38.7

19.1

56.0

44.0

43.0

55.0

Profit after tax - total reported

31.1

15.4

45.6

33.7

32.2

41.2

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

Net attributable income

31.1

15.4

45.6

33.7

32.2

41.2

Tax rate

20%

19%

19%

24%

25%

25%

Average basic number of shares in issue (m)

18.5

18.6

18.6

18.7

18.7

18.7

Average diluted number of shares in issue (m)

18.7

19.0

19.0

19.3

19.2

19.2

Basic reported EPS (p)

168.7

82.7

244.7

180.5

172.3

220.5

Reported diluted EPS (p)

166.7

81.0

239.4

174.7

168.0

214.9

Ordinary DPS (p)

87.2

44.0

61.1

45.1

42.0

53.7

Net interest/average loans

6.44%

6.32%

5.57%

5.60%

5.41%

5.68%

Cost of risk

1.4%

2.3%

0.1%

1.4%

1.4%

1.4%

Cost income ratio

56.9%

55.8%

60.0%

55.0%

54.0%

52.0%

Balance sheet

Net customer loans

2,450.1

2,358.9

2,530.6

2,919.5

3,380.0

3,745.0

Other assets

230.6

302.3

355.1

460.3

505.1

535.0

Total assets

2,680.7

2,661.2

2,885.7

3,379.8

3,885.1

4,280.0

Total customer deposits

2,020.3

1,992.5

2,103.2

2,514.6

2,864.4

3,200.9

Other liabilities

408.4

401.1

480.3

538.8

668.4

695.7

Total liabilities

2,428.7

2,393.6

2,583.5

3,053.4

3,532.8

3,896.5

Net assets

252.0

267.6

302.2

326.4

352.3

383.5

Minorities

0.0

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

252.0

267.6

302.2

326.4

352.3

383.5

Other selected data and ratios

NAV per share (p)

1,364

1,438

1,622

1,748

1,884

2,051

Tangible NAV per share (p)

1,315

1,396

1,584

1,713

1,849

2,016

Return on average equity

12.7%

5.9%

16.0%

10.7%

9.5%

11.2%

Return on average TNAV

14.8%

6.4%

18.6%

11.4%

11.9%

14.4%

Average loans

2,258.9

2,389.0

2,444.8

2,725.1

3,149.8

3,562.5

Average deposits

1,967.8

2,010.3

2,002.8

2,308.9

2,689.5

3,032.6

Loans/deposits

121%

118%

120%

116%

118%

117%

Risk exposure

2,118.1

1,999.7

2,087.4

2,335.0

2,752.7

3,079.1

Common equity tier 1 ratio

12.6%

14.0%

14.5%

14.0%

12.4%

12.0%

Source: Secure Trust Bank, Edison Investment Research

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 £60,000 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 research department of Edison 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 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

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.

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

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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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 £60,000 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 research department of Edison 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 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

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.

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

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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

More on Secure Trust Bank

View All

Latest from the Financials sector

View All Financials content

Research: Healthcare

IRLAB Therapeutics — Numerous clinical platform activities under way

IRLAB has reported its Q223 results, including a recap of clinical activities and financials. IRLAB shared a full analysis of the mesdopetam Phase IIb trial data, and noted the company’s focus on preparing for its FDA end-of-Phase II meeting after securing full rights to the project (previously out-licensed to Ipsen). In addition to the FDA preparations, IRLAB will maintain a flurry of clinical activity, including the anticipated release of top-line results for the Phase IIb pirepemat trial (H124) and potential promotion of up to three preclinical assets (to Phase I-ready status) from H223–FY24. At the end of the quarter, IRLAB had a net cash position of SEK156.4m, supporting a runway through H124. Based on net cash and the anticipated activities, we value IRLAB at SEK4.47bn or SEK86.1/share.

Continue Reading
IRLAB Therapeutics_resized

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free