Arbuthnot Banking doubles profits

Arbuthnot Banking Group (ARBB) is a company that is famously unruffled by most events, a state of mind that only 133 years of continuous operation can bestow, but even its famously serene exterior would have experienced delight at some of the best banking results seen this season.

Higher interest rates, and deposits that increased by 21 per cent to £3.8bn, have benefited the company to the extent that its profits doubled in a year. Banking rarely offers up an example of true operational gearing, which is what Arbuthnot managed in these results.

This is primarily due to the company’s boutique size and its self-described, “relationship-based approach across both Private & Commercial Banking”. It helps that it can rein back lending quickly, which was reflected in controlled loan growth of 6 per cent to £2.3bn. The bank took on 1,200 new clients during the year, while term deposits nearly doubled. It also made a decent profit from excess capital held at the Bank of England.  

The wealth management side of the business's headline inflows of funds under management and administration increased by 29 per cent to £1.7bn. However, the backdrop of rising interest rates meant outflows rose as clients elected to pay down debt secured against investments and to accelerate property gifts to children to avoid taking out more costly mortgages, resulting in gross outflows of £165mn for the period.      

FactSet consensus values Arbuthnot at 5.9 times earnings for 2024, with a dividend yield of 4.5 per cent. No one can argue with the bank’s operational execution, but the lack of liquidity for the shares is a major barrier. Hold.

Last IC view: Hold, 1,050p, 18 Jul 2023