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Currency in GBP
Last close As at 26/05/2023
GBP6.26
▲ 14.00 (2.29%)
Market capitalisation
GBP117m
Research: Financials
Secure Trust Bank (STB) announced a robust trading update with net lending exceeding £3bn, driven by a 17.7% sequential increase in new business lending. Deposits also significantly increased year-on-year by 16.2%. STB has expanded its capital position through the issuance of £90m tier 2 capital bonds, which is now complete. The augmented capital will provide the bank with growth opportunities in its lending activities. Management states that STB is trading in line with expectations and remains confident in delivering on FY23 and medium-term targets as well as improving its cost income ratio by the end of the year. We maintain our estimates for FY23 and FY24 and highlight that STB should be trading at c 0.45x price-to-book value (P/BV), based on our FY24 estimates, to be fairly valued compared to peers. STB currently trades at a P/BV of 0.31x.
Secure Trust Bank |
Positioned for strong growth in FY23 |
Q123 trading update |
Banks |
19 May 2023 |
Share price performance
Business description
Analysts
Secure Trust Bank is a research client of Edison Investment Research Limited |
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Secure Trust Bank (STB) announced a robust trading update with net lending exceeding £3bn, driven by a 17.7% sequential increase in new business lending. Deposits also significantly increased year-on-year by 16.2%. STB has expanded its capital position through the issuance of £90m tier 2 capital bonds, which is now complete. The augmented capital will provide the bank with growth opportunities in its lending activities. Management states that STB is trading in line with expectations and remains confident in delivering on FY23 and medium-term targets as well as improving its cost income ratio by the end of the year. We maintain our estimates for FY23 and FY24 and highlight that STB should be trading at c 0.45x price-to-book value (P/BV), based on our FY24 estimates, to be fairly valued compared to peers. STB currently trades at a P/BV of 0.31x.
Year end |
Operating income (£m) |
PBT* |
EPS** |
DPS |
P/E |
Yield |
12/21 |
148.9 |
55.9 |
239.4 |
61.1 |
2.6 |
9.6 |
12/22 |
169.6 |
39.0 |
174.7 |
45.1 |
3.6 |
7.1 |
12/23e |
189.3 |
44.4 |
167.0 |
41.7 |
3.8 |
6.6 |
12/24e |
204.8 |
52.0 |
200.1 |
50.0 |
3.2 |
7.9 |
Note: *PBT from continuing operations. **Fully diluted.
In Q123, new business lending increased 7.2% against Q122 as Business Finance delivered its strongest quarterly lending result since Q222, and Consumer Finance increased for a fourth consecutive quarter. Consequently, Retail Finance increased its market share to 11.9% from 11.4% (at end-December 2022). Net lending exceeded £3bn as the customer loan book increased 17.3% versus Q122. Vehicle Finance and Retail Finance lending increased by 7.3% and 3.5%, respectively. Similarly, Real Estate lending increased by 4.3% as pipeline developments procured in Q422 translated into new business. However, Commercial Finance lending declined slightly in the quarter. Furthermore, STB onboarded £343m in deposits during Q123, bringing deposit balances to £2.5bn (Q122: £2.2bn).
On the back of a strong Q1 performance, management stated that the company is trading in line with expectations and is confident in achieving medium-term targets (return on equity of 14–16%, CET1 ratio of >12% and lending book CAGR of 15%+ by FY25). The issuance of the £90m tier 2 capital, followed by the buyback of the existing £50m tier 2 capital, will provide the group with further capabilities to continue to deliver high-quality loan book growth. STB remains committed to improving its cost efficiency. Project Fusion, the cost optimisation programme, is on track to deliver annualised savings of £4m by the end of FY23. Management is confident in its ability to continue to grow the business in its specialist market segments and remain well-positioned to grow its lending balances as it continues to strengthen its partnerships while simultaneously reducing its cost-to-income ratio.
Our continuing PBT estimates of £44.4m and £52.0m for FY23 and FY24, respectively, are unchanged. At current prices, and using our estimates for FY24, STB trades at a P/BV of 0.31x. Based on our peer analysis (see our previous note), we highlight that STB should be trading at c 0.45x (based on FY24 estimates) or c 919p, to be fairly valued compared to peers. This represents a 45% uplift from its current share price.
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Research: Investment Companies
BlackRock Latin American Investment Trust’s (BRLA’s) lead manager Sam Vecht and deputy manager Christoph Brinkmann have a high degree of confidence in the positive prospects for the trust’s portfolio. It has an overweight exposure to Brazil versus its benchmark, the MSCI Emerging Markets Latin America Index. Vecht highlights high real interest rates in the country, providing scope for a lower base rate. Brazil now has a more stable political situation, and the manager anticipates that the economy should turn around in H223, which he believes would be positive for equity performance. Vecht and Brinkmann consider that BRLA’s portfolio has real potential to deliver better absolute and relative performance.
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