Secure Trust Bank Share Discussion Threads

[popit] 05/3/2024 20:38

apple53

I agree that OSB and STB look very good value

Have you looked at Halyk Bank?

It also looks very cheap with a forecast PE of about 3 and a 15% yield

[p1nkfish] 03/3/2024 19:10

The TA on TBC looks very interersting and healthy on the weekly. Broke through 52 week high after consolidation. The monthly put a really useful looking candle in for February. All trend lines are heading in the right direction.

Just an observation.

[mrscruff] 03/3/2024 19:02

Free float is low due to all net selling be done some time ago. I too am attract to that low free float as negativity was factored in months ago.

@Apple, As for momentum you don't need a paid for tool to tell you that, you only need to draw trend lines on a zoomed out chart usually 1 year. I may never get to your level of bottom-up and top down analysis but you could easily learn Trend Lines, RSI and MACD. Don't bother with the candlesticks nonsense.

I too sell too early take a look at Bank of Georgia (BGEO) where I thought I sold at a lovely profit but it kept spiking up last week.

I do think financials should be in a good place and some quality companies can be had as they have a period of net selling that is overdone... I quite like Alpha Group!

[p1nkfish] 03/3/2024 16:57

MrScruff, it was a comment in response to apple53 suggesting the banks should buy back their stock. The free float is quite low so if no large holder sells into a buyback the price could respond quickly and positively.

[mrscruff] 03/3/2024 16:35

@apple53 thank you for your considered and detailed post. I will look to diversify my exposure to these bank stocks and will look at OSB. I clearly have much more to learn in this area and have been over excited as I sell down my holding in BGEO and looking for new home to place the cash.

@Pinkfish I don't see any buybacks, presume this was some time ago?

[apple53] 02/3/2024 19:56

MrScruff,

I agree this is a great opportunity for investors. I don't agree with your view on rates or growth etc., and I wrote the following to remind myself of history and the investment case for these banks.

Higher rates tend to benefit earnings, though much higher rates are typically thought likely to increase bad debt charges. Materially higher rates and a high recession risk is normally enough to hit multiples. [it is important you don't have silly regulators that require you to buy reams of government bonds at low interest rates - this is what killed SVB and, arguably, First Republic].
Overall, though, there isn't really any correlation between rates and multiples.
'Any growth' doesn't tend to drive the share price violently up. Balance sheet growth requires capital, and more than it used to under Basel 1/2. In the case of STB the drive for rapid growth probably hit the share price, as it required a dividend cut, and also because some shareholders are rightly scared of rapid growth in bank balance sheets. One of the clearest correlations (with causation) in banking is rapid growth and subsequent high (sometimes disastrous) bad debts.
Bank investors 'normally' like modest balance sheet growth, faster growth in fee income, a low level of dealing income and an expectation of a falling cost income ratio.

Historically, banks have traded at 8-15x forward eps. It is only in the past few years that 5x earnings has been considered normal, and this in Europe, but not the US, where 9-12x is more typical.

What is doubly weird about the ridiculously low multiples is that UK banks are much much safer than they used to be. Equity capital ratios are 2.5-4x higher than in the noughties. [There is a downside to this - RoEs are lower, and incremental growth needs more incremental capital]. They are also encouraged to ex-ante provision (which is good as it helps to smooth provisioning across the cycle). Overall CoE should be lower.

None of this means that banks are immune to property market collapses. Some (US) banks are over-exposed to commercial property (NYCB). This has been the cause of most bad debt crises (as opposed to the liquidity crisis post-Lehman). Resi mortgages are also at risk from a big increase in unemployment, double digit interest rates, 40% falls in value (each in isolation) or a milder combination of the 3.
The other risk to banks is social media, which magnifies problems that used to swept under the carpet, such that issues which might have been manageable with a couple of year's retained earnings can now be enough to cause a run.

STB is probably the weirdest example (and could be the cheapest bank in the developed world), but OSB stands out even more. STB is tiny; OSB merely small. STB is building a growth track record; OSB already has one. STB is modestly profitable; OSB is very profitable (for a modern bank). STB is modestly at risk from an increase in bad debts; OSB is highly cushioned - it has SUCH a low cost income ratio that its leverage to an increase in bad debts is almost the lowest in the industry. If it was 10x the size and based in the US it would trade at twice the valuation or more.

I have no idea when this situation will 'normalise', but in the mean time these banks need to buy back their stock (and I would happily forgo some yield to fund this).

[mrscruff] 01/3/2024 13:41

Well the low multiple is because it has a high amount of debt meaning higher gearing as banks typically are. As rates rose that becomes a risk. The equity is tiny, meaning that any growth would drive the share-price violently upwards... and equally it is higher risk. The global economy is looking pretty good. A few rate cuts would really help. A great opportunity for investors.

[tole] 01/3/2024 12:52

As was recently noted on here. SharesMag yesterday confirms in its Ideas Updates that even after the recent rally these still trade on a very low multiple 3.5x earnings, 0.4 book value and 7.5% yield."We believe there is further upside as the shares still look cheap"FY results 21March

[p1nkfish] 29/2/2024 16:09

There's business to be made in helping UK SMEs adopt and integrate AI tools.

[p1nkfish] 29/2/2024 15:43

Before anyone says this is not a comparable situation, I agree.
Point is new tech and approaches can massively enhance productivity, customer perception/interaction and earnings.



Hope STB engage a forward looking brain as the extra earnings others make can be turned into products and services that will be hard to beat and moves onto their patch. No one is immune to being unseated.

[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.