Secure Trust Bank Share Discussion Threads

[popit] 24/2/2024 19:42

Still very good value here and it is difficult to understand why they are both so lowly rated

Secure Trust Bank

Forecast PE is less than 3
Dividend yield is about 7%
Price to Book is about 0.4


Halyk Bank

Forecast PE is less than 3
Dividend yield is about 15%
Price to Book is about 0.8

[jeff h] 08/2/2024 14:08

Hi apple,

As regards previous changes to EPS forecasts the below link to Edison will explain when and why they changed their forecasts:-



Given how quick the economic, regulatory, interest rate etc picture can change I tend to give a lot less weight to future year forecasts than the current year one.

[apple53] 07/2/2024 10:45

Thanks very much for the updates Jeff. Given you very helpfully provided some forecasts, I thought I would provide a bit of context.
According to Market Screener, in March 2023 just before the full year 22's were published, the forecast eps's were 133p, 163p and 203p for 23/24/25. By 17th April, the 3-4 analysts covering had finished their sharp upgrades, and the forecasts were 171p, 200p and 251p respectively. Average upgrade about 26%! The 24-25 forecasts have dribbled up materially further to 215p and 261p respectively, while 23 has just recently slipped to 160p, perhaps reflecting Edison's small downgrade Jeff mentions. Shore's 248p for 25 looks a bit more sensible than the 261 consensus.

And to provide some analytical context see below my brief write-up on the full year figures last year. Note the point about slow-burn. Please note I would not be posting this if I had been horribly wrong!

Valuation remains stupid. Presumably it's too small for anyone to bother buying it? M&A was always my weakest point.

QUOTE
Great results at first and second glance (but need to read properly). Unsurprisingly so, perhaps. Analysts will have to upgrade. Probably quite a lot.

Guys, remember dividend is arithmetically determined at 25% of stated eps.

19% loan growth, a) not actually that conservative optically; however as a small bank there is scope to grow quickly while still keeping standards and margins high by cherry-picking in a large forest, b) they need capital to fund growth which was the whole point in changing the dividend policy.

Underlying eps was around 90p in the second half, so well up on H1 as expected.

Now to the important stuff: the underlying profitability jumped c. 20%!
Operating income from 81m in H1 to 88m.
Costs pretty flat hence operating profit (pre-provision) up from 34.8m in H1 to £41.6m in H2.
This meant they had scope to make quite a lot of (anticipatory) provisions and still grow eps (from a low base) rapidly.

I think this will be a slowburn since the headline figures don't appear outstanding on a year-on-year basis.
UNQUOTE

I still haven't really absorbed the full year trading update. If I can, and have anything additional, I'll post again

[jeff h] 06/2/2024 22:52

Martin Lewis on Discretionary Commission Arrangement potential claims, see the MSE website for full details:-

"The FCA estimates 95% of car finance deals had a commission model, and 40% the crucial ‘discretionary commission arrangements’. If yours did, and it wasn’t made clear – which it almost never was – we reckon you're likely to be entitled to money back when the FCA finishes its investigation and un-pauses complaints (scheduled for 25 September 2024, but may be extended).....

The vehicle had to be for primarily personal not business use. Commuting comes within personal use, but using it more than occasionally for business or paying on your business will likely mean it won't count.

You CAN reclaim on behalf of someone who has passed away. Though it's likely the lender will want to see a copy of the will and the grant of probate to ensure any compensation due goes to the right person.

It DOES include Personal Contract Purchases (PCP). Personal Contract Purchase are where you make loan-like repayments with the option to pay a larger 'balloon' payment at the end if you want to own the car.

It DOES include hire purchase. Hire purchase is where you pay off the total value of the car in monthly instalments.

It DOESN'T include Personal Contract Hire. Personal Contract Hire is what people usually talk about as leasing a car. This isn't included in the FCA investigation – if you had this type of finance agreement, this guide isn't for you.

It DOESN'T include interest-free finance. If you had a genuine 0% interest deal, then by definition there was no 'discretionary commission arrangement' between the lender and the broker, as these DCAs were all about increasing the interest.

A Blackhorse borrower bought a £7,619 car with a 100% loan and paid 5.5% interest (£2,096 over five years), when the cheapest rate available was 2.49%. The Ombudsman ordered Blackhorse to repay the £1,147 difference in commission, plus interest.

The interest rates above are actually flat rates of interest not APRs, a trick car dealers used to makes rates look cheaper – actually it was a 10.5% APR they were actually charged.
The FCA's own stats suggest that, on average, car buyers paid £1,100 more interest on a typical £10,000 four-year car finance deal when there was a discretionary commission arrangement. So, obviously, the bigger the financing, the more you were charged, the more you may be due back.

The FCA hasn't set out anything on redress, so there's no clue yet how much you could get back. It could decide all the interest should be repaid, or only a fixed percentage above a fair amount – for now, we don't know – so the Ombudsman ruling is the best guidance.

[jeff h] 06/2/2024 19:51

Good to see for whatever reason or influence the share price seems to have bottomed and now on an upward phase.

The company continues to find lending opportunities such as the one below for £35m



Brokers do not seem to be too perturbed about the FCA involvement, Edison today states the motor finance issue as "Given its minor representation in the bank’s lending book, we anticipate any costs associated with the review to be modest."

....whilst allowing a cost of £2.3m in the 2023 figures for the separate vehicle finance collection processes and procedures review. New forecast:-

Y/E 31/12/23 PtP £41.7m EPS (Dil) 154.9p Div 39.7p

Y/E 31/12/24 PtP £55.0m EPS (Dil) 211.4p Div 53.1p (unchanged from last forecast)

After the Trading Update on 25/1 Shore Capital also updated its forecasts. It also considers the motor finance loans issue as "not material to the investment case" whilst allowing a £2m cost for the collection processes and procedures review.

In its 25/1/24 update forecasts Shore Capital is going with:-

Y/E 31/12/23 PtP £43.6m EPS 177.1p Div 45.1p

Y/E 31/12/24 PtP £55.4m EPS 222.0p Div 55.5p

Y/E 31/12/25 PtP £61.9m EPS 248.1p Div 62.0p

Martin Lewis I believe is going to include the motor finance commissions issue in his programme on tv tonight at 8pm, whether he has anything new to add we shall see.

[apple53] 05/2/2024 23:14

His focus on dividend cover is interesting. In a sense it's quite an outdated concept, but more importantly he failed to note the reason for the modest divvy - the 'pivot' to growth, which obviously need(ed) a larger proportion of retained earnings. It is also true that the capital environment has been a moving feast.
To his 2 reasons for poor performance since £12 (banks out of favour and small caps out of favour) I would add 3, which were specific and catalytic:
-The pivot to growth - actually not that conservative at the time and scared some investors.
-The concomitant dividend 'cut'
- The poor application, and misunderstanding by investors, of ex-ante provisioning, such that we went from large Covid provisions, to zero (approx, and from memory) and back up to 'normal' (actually high as ex-ante provisioning 'punishes' balance sheet growth).

He amusingly raised unsecured lending but then gave 2 examples of secured - I think he meant 'niche retail' rather than unsecured.

Most importantly, he didn't mention that the low divvy gives them more scope for buybacks, which is what they should be doing at 60% discount to NAV.

[penpont] 31/1/2024 17:26

Thanks, good summary of the investment case.

[igoe104] 30/1/2024 09:38

STB talked about by Lord Lee in the latest IC podcast..

[buffett4] 25/1/2024 10:31

If it just relates to loans on 'new' vehicles the potential liability should be much lower since the vast majority of the loans are on used vehicles. I re-read it in the light of your comments and it does read as if it is only on 'new' vehicles however from a practical stand point of view I'm not sure it makes much sense because they are unlikely to have had a discretionary commission model for 'new' in yet not 'used' vehicles. The other way to read it is 'new vehicle finance' - as in new loans not new cars, which I think is likely what it is meant to say. Would love to be wrong though.

[1tx] 25/1/2024 09:49

It is a mid single figures of NEW car finance;I assume STB loans on second hand cars,so may be a lower proportion of total vehicle loan book affected.

[buffett4] 25/1/2024 09:08

Looking back at the accounts from 2014-2017 I calculate that their motor finance lending was around £415 million (I had to take an educated guess for 2014 based on the growth in the loan book because the actual figure wasn't given). A mid single digit proportion of those loans had a discretionary commission, so take 5% of the total motor finance loans- that's £20.75 million. Say they have to compensate customers for the potential increased interest charges of say 10%-20% of the loans- its £2 to 4 million. There will be Terms of Business Agreements in place with the brokers/dealers who up sold the rates to the customers so it may even be possible to claim the majority back dependent upon the exact clauses. I'd prefer the issue wasn't there (obviously) but in the grand scheme of things with steady loan book growth, £5 million reduction in annual costs on track and trading in line with management expectations I think we are looking good here. Please do double check my figures and make your own assumptions.

[riverman77] 25/1/2024 07:44

And remember vehicle finance is only a small part of the overall business - so a small percentage of a small percentage of lending from quite a long time ago.

[p1nkfish] 25/1/2024 07:27

Mid single digit, say < 7% max, over a 4 year period (probably less than 48 months) and stopped about 7 years ago.

Sounds like noise.

Overall very positive update.

[johnhemming] 25/1/2024 07:15

"Regulatory initiatives - Vehicle Finance

We note the FCA's recent announcement about discretionary motor finance commissions. We operated some discretionary commission arrangements until 2017. From 2014 to 2017, a mid-single digit proportion of our new vehicle finance loans included such arrangements. The FCA plans to set out its next steps in Q3 2024, when the implications for the industry should become clearer. We will provide further information to the market on these developments as appropriate."

[buffett4] 24/1/2024 09:34

One more sleep to go.....

[red ninja] 20/1/2024 13:10

pf,

Agree there is nothing which states that V12/STB has anything to do with this.

The Shares Magazine article on Motor finance mentions :-

"Firms which generate revenue from providing motor finance include Close Brothers (CBG), Inchcape (INCH), S&U (SUS) and Secure Trust Bank (STB)."

I was wondering why they mention those firms particularly and I think it is probably just because Shares Magazine has covered those companies in preceding weeks/months rather than for any untoward reason.

[p1nkfish] 20/1/2024 10:21

I don't see any reference to V12/STB being tainted. Have been searching. Clarity from STB would help.


"Whilst other lenders had to change their pricing approaches on discretionary commission structures, we were already running on a fully compliant model."

See Pricing Approach.

2020 Final Results - "It is not anticipated that the FCA's ban on discretionary commission models will require actions by the Group, however, the additional disclosure requirements are being worked through with Retail Finance and Motor Finance."

[red ninja] 20/1/2024 10:05

Thanks B4

It's good to have an opinion from someone in the industry.

[buffett4] 20/1/2024 09:48

I work in motor finance and unless I am missing something I do not believe that STB have any involvement in the historical commission arrangements that the FCA are potentially classing as unfair. It is my understanding that they relate to a 'difference in charges' (DIC) commission structure where by the broker/dealer historically received a higher commission from the lender for selling a higher rate to the customer. This was common place in the market from 'prime' motor finance up to three or four year ago. However, I believe that since the prime motor finance business at STB namely V12 was only introduced a few years ago , I dont think they ever offered 'DIC' commission arrangements. The new arrangements are typically a fixed % commission based on a fixed rate. Moneyway are a non-prime lender, we have dealt with them for over a decade. In the non-prime market DIC arrangements were not common place, and typically the lender pays a set fee dependent upon various factors such as the tier of lender (dependent upon the customers credit score) etc. I do not recall Moneyway ever offering a DIC commission arrangement. So please DYOR but it is my opinion from what I can gather at this stage that STB are in the clear in relation to potentially unfair historical commission arrangements. Hope that is helpful.

[red ninja] 20/1/2024 09:06

It appears at this stage that the companies in the frame for motor finance allegations are mostly the big ones :-

Barclays
Lloyds
Santander
Motonovo

However, the market is obviously worried about contagion.

[red ninja] 19/1/2024 16:14

It would be nice if the FCA could give more timely direction to the finance industry rather than after a decade or two.

[deanowls] 19/1/2024 16:07

Then the government call in banks and ask why they are not lending!

Madness.

[flying pig] 19/1/2024 15:09

P fish I entirely agree. Equally if they were to be threatened, it would make sense to have an RMS quantifying the problem and potential exposure.

On balance I think it is probable that they are relatively innocent.