Financial Grime 17 October 2018

Oct 17, 2018 / News

   I find Trump vowing to go after “Horseface” stormy Daniels a strange world.  If the US president can talk in those terms just think what equity analysts could do. Wee could have a new Horseface recommendation. That suggested fund managers appropriate reaction to announcements. This is clearly an exciting new world.

Rathbone – Q3 Update  - Thoroughbred

Share Price 2318p

Mkt Cap £1.3bn

  • Update in Investment management pure organic net inflows were 0.6% in the 3 months to September but the acquisition of Speirs & Jeffrey added 19.6% to AUM bringing total AUM to £41.27bn. The unit trust business had organic net inflows of 2% over the quarter bringing AUM to £6bn. Net revenue was up 14% year on year
  • Estimates  The first 9 months of the year have delivered £233m of net revenue which is 75% of the full year expectation of £311m. Forecasts therefore look conservative given the addition of Speirs and Jeffrey AUM in Q4.
  • Valuation Mkt Cap/AUM is 3.15%. PER is 16X and yield 2.8%.
  • Conclusion This thoroughbred racehorse makes 19% ROE though its not easy to grow AUM fast organically.  The rating looks reasonable and the disclosure is the best I have come across in the market.


Arbuthnot Banking Group Plc – Q3 Update  - Out on the track

Share Price 1375p

Mkt Cap £205m

  • Update Expects results to be “in line”.  Customer lending balances up 28% year on year and originations up 18%. The new asset based lending has a strong pipeline and specialist finance is expected to write its first deals in Q4. Direct Deposits has completed its testing and launches “soon”  The strong demand for its other deposit products results in record surplus liquidity.
  • Estimates No change expected today
  • Valuation The ROE for the year to Dec 2018 is expected to be 3.8% rising to 5.7% next year.  The shares trade at a 10% discount to net tangible book value.
  • Conclusion The share price is anticipating the company never achieves a ROE above the cost of equity.  Perhaps that’s reasonable because that is not being forecast. However it is reasonable to assume the company wouldn’t be expanding its product range as it is unless it aimed for a return above the costs of equity.  With the strong balance sheet downside is limited and if say a 10% ROE was achieved a valuation of perhaps 1.5X book value may be expected. That’s £24 per share – 74% above the current price.


Secure Trust Bank – Q3 Update - Returning to the stable

Share Price 1398p

Mkt Cap £258m

  • Update Q3 was “strong” and in line with expectations. The company is adopting a selective approach to lending given Brexit. The statement also refers to the Super Complaint to the CMA over loyal customers getting worse deals than new customers for financial products.
  • Estimates No change expected today
  • Valuation The company avchieves an 11% ROE and trades at 1.1X book value.  PER is 11.1X and yield 5.9%.
  • Conclusion  Cheap but more upside on Arbithnot. Can’t see a catalyst to change the STB valuation