Secure Trust Bank Share Discussion Threads

[apple53] 25/4/2023 07:57

So the issue here is the 'growth strategy'. If they had made smaller changes to the business mix and ambition they could have continued with the previous dividend.

The sort of formula one should be thinking about (ex-analyst talking) is the marginal RoE on growth. That assumes deposit growth at a certain price, lending rates, bad debt assumption and marginal Cost to income ratio. If the marginal RoE is above the cross-cycle RoE of the group it is generally worth pursuing. If above cost of equity but below RoE then management can justify doing it, but should consider alternative uses for capital - divvy, buybacks, increasing T1 ratio. If below CoE then they should steer clear, obviously. Given the range of assumptions this is an inexact science so I prefer to see marginal investments to be above cross-cycle RoE (assuming it is materially above CoE).

Assuming capital ratios are more than sufficient then the hoary chestnut of buybacks vs dividends come into play. I like a lowish sustainable dividend (investors HATE dividend cuts even if for positive reasons otherwise the dividend ought to bounce around depending on growth opportunities) and use excess cash for buybacks. Good discipline all round.

I have a lot of sympathy with people that are concerned when banks 'go for growth' - I want to hear about marginal profitability with conservative assumptions.

Clearly if deposits get more expensive, eg as interest rates fall competitors don't cut their deposit rates enough, then the equations change and STB should reduce its growth rate.

[catabrit] 24/4/2023 13:42

I think River's second from last point is spot on.

[riverman77] 24/4/2023 13:27

To be honest I'd like the dividend to be a bit higher - if they paid 50% of earnings (which I think is the minimum I'd want from a well capitalised bank) then this would be on a 12-13% yield. They seem to be only paying out around 25% which is a bit on the low side for me.

[brucie5] 24/4/2023 10:11

Yes, I was interested to see this newsletter and to read further about his portfolio approach. For time being though I'm content to let the dividend do the talking, while keeping an eye on the chart, which suggests a solid base at just over 600 level.

[riverman77] 23/4/2023 21:01

His main concern seems to be that the bank has set up lots of new lending businesses over the past decade to meet its rapid deposit growth. Some of these have since been closed down, while those that remain are still fairly new. So it doesn't meet his requirement of having a long, established track record and seems to be trying out lots of different things but without quite hitting the sweet spot yet. That's fair enough, and I can see he tends to invest in very well established, blue chips (Unilever, Next, etc.}. However, on a 0.4x book I'd say this is more than reflected in the price so I'm happy to hold at these levels,although probably not one of my highest conviction positions.

[apple53] 23/4/2023 18:46

gosh I thought he was positive - I didn't get to the end when I saw the above issues

[p1nkfish] 23/4/2023 17:41

STB just won't meet his requirements but neither do other companies that make good investments.
It's called a market. Dyor etc. If his article helps push the price down I won't be complaining but will be buying.

[apple53] 23/4/2023 17:25

although well meaning a slightly depressing article from ukdividendstocks.
I haven't read every word but from the div comments I've seen it seems he missed the change in dividend policy (to formulaic) to allow for higher growth, so there will be further 'cuts' and rises as eps varies. And that the NIM has fallen due to closure of some higher margin business. And that return on capital is a function of changing regulatory requirements (ie a doubling of required capital) making it hard for a bank to achieve a double digit RoE while being very safely capitalised. The interesting point there is that much higher capital should mean safer bank and lower cost of equity, so a higher PE, but a) in my dreams! and b) SVB and CS scare people into thinking banks are not safer after all.

The thrust of the piece looked bang on, and I really am not trying to be critical, just helpful.

[mundungus] 23/4/2023 16:51

FYI
hxxps://www.ukdividendstocks.com/blog/secure-trust-bank-dividends

[brucie5] 19/4/2023 17:18

Value spotting: glad to see you hold this. But do you really run a three share portfolio, given other positions are closed? What relation to your bond holdings?

[value_spotting] 19/4/2023 16:58

Check out my latest post on STB! hxxps://open.substack.com/pub/eddielloyd/p/model-update-free-download-secure?utm_source=direct&r=267k4u&utm_campaign=post&utm_medium=web

[caughster12] 16/4/2023 11:06

Hey mate, do you have a link to the Canacord note?

[apple53] 14/4/2023 10:40

Good point catabrit. It's the "short marble" trade.

[catabrit] 14/4/2023 09:50

The most encouraging thing I’ve seen from STB is on LinkedIn; they have the most unassuming “new HQ” I think I’ve ever seen.

[riverman77] 14/4/2023 07:57

Good detailed broker note out from Canacord. On 0.4x book value and PE under 5 this looks absurdly cheap, especially given its good growth prospects and prudent approach.

[linton5] 03/4/2023 16:12

My trade never even showed up that’s a first

[retsius] 03/4/2023 12:00

I think a lot of selling is due to end of tax year balancing.

Cityfunds this AM gives a glowing appraisal and said could be a bid target.

The price has conveniently dropped down so it can go into next year’s ISA.
Dyor
R.

[cfro] 03/4/2023 07:57

A lot of additional info in that article thanks..
They've obviously been very proactive on the commercial lending front (a massive growth area despite the current SME subdued activity) and better than just simply concentrating on the boring old mortgage lending which is a highly competitive market.

[p1nkfish] 03/4/2023 07:30

From the Business desk today.

"The commercial finance arm of the listed specialist bank Secure Trust Bank has seen lending balances rise to £376.4m in 2022, up 20.1 per cent from 2021 (£313.3m).

Revenues at the Solihull firm have also seen a considerable 68.4 per cent increase, rising to £29.3m in the calendar year (2021: £17.4m).

The majority of the increase was driven by new business, as the firm delivered £157.3m in new facilities, up 63.6 per cent on the previous year (2021: £93.7m).

Facilities provided by the bank’s Commercial Finance arm include the support of a multi-million asset-based lending facility to Staffordshire-headquartered International Decorative Surfaces (IDS), the UK’s largest distributor of decorative services, as it completed a management buyout in partnership with private equity investor Chiltern Capital.

Secure Trust Bank Commercial Finance also provided a combined £12m facility to UK hobby and toy specialist Hornby Hobbies, made up from a £6m accounts facility and £6m inventory facility. It also enabled the UK’s largest woollen yarn spinner, Lawton Yarns, to return to private ownership with the delivery of a £13.4m total facility.

In partnership with Blazehill Capital, the bank delivered a £43m package for Northamptonshire pet food brand, Butcher’s Pet Care, consisting of a £25m revolving credit facility and an £18m non-amortising bullet repayment term loan.

David Parsons, regional managing director for Midlands at Secure Trust Bank Commercial Finance, said: “It’s a pleasure to share our latest results that showcase positive growth in new business, lending balances, revenue and clients. We are especially proud of our low client attrition rates, reflective of our ability to provide tailored funding solutions that genuinely aid the management teams we work with.

“In what has been another challenging year for SMEs across the UK due to a decline in economic activity, rising inflation and cost pressures, our focus remains on building relationships that allow us to thoroughly understand the opportunities and challenges ahead of each business, and react accordingly.”"

[retsius] 01/4/2023 20:55

Pinkfish

Many thanks

That’s what I kinda thought.
R.

[p1nkfish] 01/4/2023 19:29

My understanding, please correct if others know more.

Reversing an impairment needs proper justification to avoid non-compliance with UK banking regulations and can't usually be added back as they are adjustments to reflect an asset value reduction, recognised as a loss on the income statement.

[retsius] 01/4/2023 18:23

Can someone tell me if the impairments can be added back into the accounts if they are not actually needed?

[p1nkfish] 01/4/2023 16:50

I'm often wrong but do strongly believe STB is in a sweet spot.

They can become more Conservative quickly if need be and still out grow the wider economy imho.
Totally agree that a carefully run STB hitting problems = tin hats on everywhere.

[topvest] 01/4/2023 15:45

This bank continues to perform pretty well and is conservatively financed. I've held for a few years and well and truly underwater. The share price just continues to go down. At some point it will start going the other way, and strongly. If STB and ARBB get into trouble then we have bigger problems, as they are or certainly were cautiously run. Anyway, despite the ridiculously low price and good dividend, I haven't got the balls to buy more as I am not convinced in the merits of owning banking shares. At least its only a small position.

[catabrit] 31/3/2023 14:32

Hard to resist at this sort of price so after being flukey with top ticking the sales, I’m not going to ride my luck with trying to second guess the bottom. I bought some this afternoon. Really happy to own these down here.