London, UK, 12 April 2021

Secure Trust Bank (STB): Solid FY20, ready for growth

Secure Trust Bank (STB) reported FY20 PBT of £20.1m versus our estimate of £13m. The beat was mostly driven by lower than expected impairments (2.3% vs 2.7%). PBT was about 50% down on FY19, but the ROE of 6.2% shows resilience given the pandemic. STB's Q3 update and pre-close statement had already indicated that asset quality was better than expected and business volumes were holding up relatively well. The latest lockdown is affecting H121, but we estimate loan growth of 5% and 15% for FY21 and FY22. We see impairment dropping to 1.5% by 2022, which should help drive ROE to 11.1%. The share price has rebounded but STB still trades on an FY21 P/BV of 0.79x, despite a strong track record of value creating returns (ROE above COE). Its solid good capital base (CET1 14.2) supports management's strategy of seeking growth opportunities both organically and through possible M&A. We have increased our fair value to 2,163p/share (from 1,756p) mainly due to rolling forward one year.

We obtain a fair value (FV) of 2,163 per share using a net asset value (NAV) approach. We continue to assume a sustainable ROE of 13.5%, 10% in COE and 2% annual growth. FV is the present value (PV) of the (ROE-g)/(COE-g) formula at end 2022 discounted to FY21. The 2,163p value implies an FY21e P/BV of 1.4x; STB is currently trading on a 0.79x P/BV ratio.

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