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Arbuthnot margins squeezed

The challenger bank is also braced for a further rise in bad debts
July 15, 2020

Arbuthnot (ARBB) increased provisions for a potential increase in bad debts by just £1m during the first six months of the year, but management was mindful that the full impact of the economic downturn on credit impairments will not be fully understood until 2021, when repayment holidays are phased out.

IC TIP: Hold at 805p

However, the reduction in the base rate to a historic low cost the challenger bank £2.7m in lost revenues and would “remain an impediment to the medium term performance of the group”, management said, until the lending portfolios could be fully repriced and it starts to feel the benefit of lower rates across its customer deposits. 

In an effort to boost return on equity against the current market backdrop, management intends to refocus the core banking business on residential mortgages and grow its asset-based lending and asset finance business. 

The consensus forecast for tangible net asset value per share is 1,300p at the end of December 2020, up from 1,264p in the prior year.

ARBUTHNOT BANKING (ARBB)   
ORD PRICE:805pMARKET VALUE:£121m
TOUCH:805-855p12-MONTH HIGH:1,450pLOW:  600p
DIVIDEND YIELD:2.6%PE RATIO:32
NET ASSET VALUE: 1,280pLEVERAGE:15.7
Half-year to 30 JunTotal operating income (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201935.62.916.616
202036.60.20.9nil
% change+3-93-95-
Ex-div:na   
Payment:na