What price a loan book? This is a tricky question at the best of times. The history of retail banking provides plenty of examples where investors have overpaid (think Lloyds/HBOS), or underpaid (think Virgin Money/the good bit of Northern Rock). So it's interesting to consider Shawbrook (SHAW), which is struggling to shake off the attention of its majority shareholder Pollen Street Capital. Click here for our take on the latter's revised offer.
The takeover provides an interesting dynamic for the Shawbrook investor. Does the enlarged premium promised by the bid consortium put an adequate price on the lender's book? It's equivalent to 1.9 times expected net tangible assets, which isn't too shoddy at all against peers. And there's an economic backdrop to consider. Of the company's £4.1bn in consumer loans at the year-end, £2.5bn comes from property finance (especially buy-to-let and second-charge mortgages), £1.1bn from asset finance and £0.5bn in consumer loans.
Mortgages, especially BTL, face familiar challenges. As does consumer credit. And Shawbrook has had problems with asset finance (read here for our story from June 2016, and here for the impact on the returns that financial year). Shawbrook's buyers think a return to private ownership, with long-term owners, will allow the lender to grow more slowly and sustainably:
"The creation of a more positive and supportive ownership structure would allow Shawbrook to adopt a more flexible approach to adapt to an uncertain economic environment with more conservative growth targets, and without the pressure to pay dividends, allowing the business to retain capital to enable it to grow safely."
While Shawbrook's independent directors, in rebuffing the offer, "continue to believe that Shawbrook’s diversified portfolio creates a resilient, durable and sustainable bank, providing multiple routes to market while maintaining quality over quantity. Shawbrook’s exposure to property based lending as a proportion of its overall loan book is below the average of UK specialist bank peers."
Shareholders have to decide whether they believe the management or the majority shareholder, or else get rid. A similar tricky decision regards packaging maker RPC Group (RPC), itself a target of bearish commentary a few months back (as we analysed here). What light has been cast by its full-year returns? Read our take here.
There's plenty more below, including the half-year results of retailer Shoe Zone (SHOE), which has been working to address its import headache while rationalising its store estate. That's here.
As for the small matter of the general election, keep an eye on investorschronicle.co.uk for our analysis of what the result means for the London market.
