Osb Share Discussion Threads

[tsmith2] 19/8/2024 16:15

decent dir purchase

[apple53] 19/8/2024 13:17

Marketscreener forecast for 2025 now down to 89p.

[aishah] 19/8/2024 10:59

The Times
"Shares in OSB Group shares fell by 91¼p, or 18.8 per cent, to 393p in afternoon trading, a decline that leaves the business valued at about £1.5 billion and could make it vulnerable to a takeover. There has been a big increase in deal activity among British banks and mutuals this year, including Nationwide’s £2.9 billion acquisition of Virgin Money UK and Coventry Building Society’s purchase of The Co-operative Bank for as much as £780 million."

[riverman77] 19/8/2024 10:52

Must surely be a bid target at these levels. An acquirer could make an offer at a 30% premium to current share price and still get it at a discount to tangible book value. They'd also get their hands on a specialist lending unit with a strong track record, and a number of decent brands on the deposit side.

[essentialinvestor] 19/8/2024 10:35

Directors falling over themselves to buy post update, eh.

Market arguably tiring of their multiple disappointments.

[riverman77] 19/8/2024 10:19

On a PE of around 4 you could argue that a hell of a lot of bad news already priced in (ie earnings could fall 50% and this would still be cheap). That said, market not always rational and this tends to crash following even modest downgrades.

[flyfisher] 19/8/2024 09:49

They commented in the analysts call that a reduction in time spent on the default rate in precise from 5 to 2 months would incur a £66m charge.

Will it come about, is it already priced in ?

No position.

[apple53] 19/8/2024 09:39

Gosh I missed the CARD story, Brucie.
LIO looks quite expensive. Have they stemmed the outflows? Earnings forecast momentum in the right direction?

I am fully prepared to watch OSB go to low £3s. This market is completely disconnected from reality much of the time but I just have to see it as creating amazing buy opportunities. I will try to buy more if I have the cash (ie depends on relative performance).

[1choip] 19/8/2024 09:30

EXPECT THEM TO BOUNCE BACK TO 470 SOON

[popit] 19/8/2024 09:17

Thanks apple

That is a very interesting analysis

I also had a target price of £24 for STB and £10 for OSB

I am sure they will both eventually get there

[riverman77] 19/8/2024 08:58

Petewy - it took a few weeks to recover after the sell-off following the interim results, and then did so strongly. It's not going to recover immediately, so a bit of patience required.

[brucie5] 19/8/2024 08:56

And I've just added from some of my recent winnings in CARD. I dare say this might drop a bit more but off the back of apple's analysis (no pressure!) I believe hereabouts is a good place to accumulate while being paid quite well to wait. On similar logic I have also added to my core holding in LIO.
Obviously NAI - I'm more as often as not a counter-indicator when it comes to my buy in prices, but then you know what they say about the merits of "timing the market" vs "time in the market".

[popit] 19/8/2024 08:53

Peel Hunt: ‘Add’ OSB Group

OSB Group (OSB) has disappointed the market with its first half results but Peel Hunt has faith in its balance sheet and buybacks

The return on equity is likely to remain at mid teens levels and the balance sheet remains strong, as seen in the future £50m buyback announced

Over the longer-term the prospects for OSB are attractive


PE 4.1
Dividend yield 8.5%

BUY

[petewy] 19/8/2024 08:32

I'm out. I stayed in after 1 drop but two 1s too much...

[apple53] 18/8/2024 21:12

Analysts tend to upload their forecasts into one or more aggregator systems. When an analyst I didn't really check how this happened, nor how quickly. However I am impressed by the speed in which we tend to see responses to new news; note that OSB's mean 2025 eps forecast has already dropped 4% to 95.5, while STB's is up 4% post results to 273p.
STB seems to typically have 3 analyst inputs vs 5 for OSBs.

Yes the analysts are not all top notch and some maybe slow in catching up with news. However they run more detailed earnings models than me!

I would be interested to know about other sources, eg stockopedia, but I wouldn't be surprised if their numbers end up very similar, using almost identical lists of analysts. I like marketscreener as you can see a 15-18 month history.

Sometimes I can second guess errors - eg STB's forecasts got too high at the end of 2021, which may have helped to drive the stock performance. The reason may have been a super low bad debt charge, which analysts did not sufficiently normalise in their forecasts. Yes I did sell some at £12-13 but not enough and I started buying back at £10-11.

Final thought is that, assuming OSB's eps forecast for 2025 settles at, say, 93p, then the PE has fallen from 5.33 to 4.2ish, a 34% ish premium to STB, hence I was happy to buy back into OSB in reasonable size, hoping that we get a 10-15% pop in STB so I can marginally cut my oversized position.

I would love to fine tune this view further, particular to understand the risks of up and downgrades to forecasts. Right now I would need to spend half a day to run my own forecasts; time I don't have.

[popit] 18/8/2024 19:02

Hi apple53

Thanks

Do you know where Market Screener get their forecasts from? Is it just an average of the analysts who cover the share?

STB is a very small bank and so there will probably not be very many analysts for it. Perhaps just one or two. These analysts also often get it very wrong with their forecasts.

Or are you using a forecast or guidance from the company?

[apple53] 17/8/2024 22:48

Hi Popit I always use forward PE. 1 or 2 years or an average. I will dig out the figures ASAP, but it was based on share prices of OSB at 5.30 and stb at 7 something, and market screener forecasts adjusted a little by me. And BTW could easily have been 50% rather than 60-70; deliberately vague as these are moving targets.

[popit] 17/8/2024 19:00

apple53

Yes these are all risks for Halyk Bank but I think that it will still reward investors in the long term as they are the dominant bank in a country which is likely to see huge growth in future years

STB is also excellent value but the progress is fairly slow and the 3.5% dividend is disappointing as they could quite easily afford to pay at least twice the dividend for a dividend yield of over 7%

You said earlier that :

“OSB above £5 was trading at maybe a 60-70% PE premium to STB”

What figures are you using here?

I have 2024 basic eps for OSB of about 90p as the first half of 2024 was about 45p

And 2024 basic eps for STB of about 134p as the first half of 2024 was about 67p

So these figures at current share prices give a 2024 PE of just over 4 for OSB and a 2024 PE of just over 6 for STB

When OSB was £5 the PE would have been about 5.5

Where do you get the 60-70% premium for OSB ?

They both look very undervalued now and they are both vulnerable to any takeover bid at a 50% premium to their current share prices

[apple53] 17/8/2024 15:15

Popit I am pretty sure you got me to look at hsbk again. Thanks. Yes currency, credit, corruption and Putin come to mind as risks.

[popit] 17/8/2024 02:04

From The Times

“Shares in OSB Group closed down 90p at 393p a decline that leaves the business valued at about £1.5 billion and could make it vulnerable to a takeover”

It is difficult to find many banks, or any other companies for that matter, offering a forecast PE of only 4 and a dividend yield of 8.4%

Secure Trust Bank has a similar low PE but the 3.5% yield is disappointing

Halyk Bank also has a similar low PE and a yield of about 12% but there is a significant currency risk

Barclays had a price target of £8 last year, and if OSB was trading in the US the valuation would probably be 2x or 3x the present valuation of £1.5 billion

It certainly looks vulnerable to a takeover now, and OSB would be a very inexpensive addition for any of the big banks, Nationwide, or even PE, at a takeover price of £6 or £7

[apple53] 16/8/2024 22:56

And Brucie - yes my timing with the banks has been reasonable, except I still sell too early after massive falls (eg post covid). And of course I am often catching a falling knife on the way down.
My timing with other UK small-mid caps has been awful. Yes I bought a lot of ONT at 90p, but I started buying at £5!

[apple53] 16/8/2024 22:51

flyfisher I count on you to keep us in check on the capital requirement changes and tfsme funding (I was hoping you would help us on STB also).
OSB generates so much capital I am not worried about equity, but I don't know enough about tier 2, sub debt etc. and the impact on margins. I have assumed that the 2 'profit warnings' around the margin are partly to do with replacing tfsme funding (as well as balance sheet repricing) - not sure about regulatory funding requirements.

However, there was never a year when the banks I covered weren't facing some major issue, even in the days of 10-12x PEs.
Windfall taxes are perhaps the scariest issue. Ironic given the sector is much less profitable than my era. Barclays briefly had an SME business segment disclosure with a 45% RoE in the late 90s. I think they realised this wasn't smart when there were regular competition reviews on SME banking. These days even if the P&L might look the same (though competition is nibbling at the edges) regulators expect maybe 2.5x as much capital for the same loan book.

I would always happily value even good banks at a 30% discount to a market PE, since every decade they lose at least 2x annual profits in a credit crunch, with another year's worth on paying ambulance chasing companies and spurious claims in the latest mis-selling scandal.

Plus big banks, once they have actually achieved their potential profitability, ie by merging 15 different IT systems from multiple mergers, are ex-growth, so should trade at lower PEs than growing minnows.

Valuation comparisons also interesting with the fintechs. Oaknorth is a great business, but is probably valued at 4x OSB's PE. And Monzo.....

Thinking about other, equally cheap and profitable banks, with thanks to those who have mentioned them, I have been buying BGEO and may buy more HSBK.

[riverman77] 16/8/2024 11:06

OSB suffered an equally sharp fall at the interim results (seems to be a pattern - and a very strange one). It took about a month to recover but then rose strongly. Would expect the same thing to happen again, providing the wider market and macro backdrop remains supportive.

[longwell] 16/8/2024 10:53

I am looking at 3 month recovery.10% in 3 months and 2.5% dividend is a fair return for the period.