Another challenger bank could be about to leave London’s public markets. The board at Aldermore (ALD) has recommended a firm offer from South African financial services group FirstRand. The cash offer values the lender at £1.1bn, or 313p a share. This represents a 22 per cent premium to the share price the day prior to the takeover initially being mooted in October.
FirstRand – the largest financial services provider in South Africa – plans to integrate its UK motor finance provider, MotoNovo, with Aldermore as part of its diversification strategy. Aldermore chief executive Phillip Monks will lead the combined UK businesses if the deal completes. Mr Monks said the backing of FirstRand would enable Aldermore to accelerate its growth and expand its product range. It has already received irrevocable support from 26.3 per cent of shareholders, including its largest, Anacap.
Aldermore’s rapidly growing loan book and impressive return on equity has been typical of the challenger banks that have listed in London during the past three years, which have been without the legacy issues of their mainstream counterparts. During the two years to the end of June 2017 it has increased net loans by half to £8.1bn. That helped to almost double pre-tax profits during the period. Buy-to-let lending has led this rapid growth, dispelling market concerns that demand for these types of mortgages would fall off a cliff edge following changes to tax relief rules applied in April last year.
Momentum continued into the third quarter, with the net loan book up 12 per cent year on year to £8.4bn. Its common equity tier one ratio – as a proportion of risk-weighted assets – also reached 12.1 per cent. Management had previously said that once its CET1 ratio reached 12 per cent it would consider commencing dividend payments.
However, a spokesperson for the group said that “paying a dividend would not be in the best interest of shareholders, in light of the offer received from FirstRand”, since the offer represents an opportunity for shareholders “to realise an immediate and certain cash value in Aldermore”. Under the terms of the deal, any dividend proposed or paid would be netted off against the proposed cash per share offered.
FirstRand’s bid is equivalent to 1.8 times Aldermore’s tangible book value at the end of September. Analysts at Investec have forecast net tangible assets (T/NAV) of 184p a share at the end of December. On that basis, the offer is equivalent to 1.7 times forecast tangible assets. That’s a discount to Pollen Street’s final offer for Shawbrook earlier this year, of 1.9 times forecast TNAV.
