Chart of the week
- Yesterday the FTSE was off while small cap rose with some sharp moves for some names. There is something a little poetic that yesterday Woodford announced the closure of his business just as smaller stocks could be turning. Tony Dye left PDFM in February 2000 just a month before the tech boom was over. Possibly the closure of Woodford could be the time to buy small caps.
- This chart was sent to me by a retired fund manager who is better than me with datastream. It measure the performance of the FTSE 250 vs FTSE 100 relative to the FTSE Small cap vs FTSE 100 and illustrates the liquidity aversion that has been building since 2017
Arbuthnot Banking Group – Q3 Update
Share Price 1065p
Mkt Cap £159m
Conflict Disclosure: I Hold
- Update Mixed update with the core loan book growing 33% year on year to £1.6bn which is a little behind expectations due to uncertainty causing delays on draw downs while IFRS 9 has required higher provisions for legacy impairments. Against that the £265m mortgage portfolio acquisition is performing better than the models predicted at acquisition. The AUM at the private bank is below expectations due to market conditions. The new business divisions are growing strongly but remain small with a loan book of £208m and a small number of defaults have been experienced.
- Estimates PBT is expected to grow 30% in the current year to £9.3m followed by 50% next year to £14.2m. It sound like this may move to the right.
- Valuation NAV is £196m and market cap £159m. To earn an efficient ROE on this NAV will require in excess of £20m PBT which was anticipated at the end of 2021 but may take longer. However when it is achieved it is possible to see the shares at perhaps 1.5X book which is 85% above the current level. Current year PER 21X, yield 3.5%
- Conclusion This is one for the patient investor. It will take time but the conservative nature of the lending and the discount to book provides some protection while 80% upside over 3 years is a useful return. But it looks like it may take 4 years now.
Secure Trust Bank Plc- Q3 Update
Share Price 1270p
Mkt Cap £234m
Conflict Disclosure: No Holding
- Update Demand was health over the quarter but has slowed generally in September. The company remains comfortable with expectations and expects no negative impact from the FCA’s proposal to ban broker commission discretion in the motor finance market. It notes the short duration loan book means the company is well placed to respond to changing market conditions.
- Estimates 18% PBT growth is anticipated in the current year and 18% the following year. The downbeat statement suggest the risks are on the downside although they are comfortable with expectations today.
- Valuation NAV is £240m so the share trade around book value. ROE is 13.5%. PER 7.3X and yield 6.7%.
- Conclusion The shares are very cheap but this statement is unlikely to change that.