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Secure Trust improves on impairments

The alternative lender has exited some high-risk areas of lending
March 28, 2019

Secure Trust’s (STB) strategic shift towards lower-risk areas of lending and solid loan book growth led to adjusted pre-tax profits growing by a consensus-beating 36 per cent last year. The cost of risk reduced to just 1.8 per cent of average customer balances, down from 2.4 per cent the prior year. Given the loan book has an average duration of two years, chief executive Paul Lynam says the challenger bank can reduce its risk profile more quickly in the event of an economic downturn.   

IC TIP: Buy at 1360p

Business finance led the way in terms of loan book growth, with real estate lending growing almost a third to £770m, although management remains “cautious” towards central London housebuilding finance. After running off its legacy sub-prime motor loans, management is focused on growing near-prime lending and plans to launch dealer stocking and consumer lending products.

Customer deposits were up almost a quarter to £1.85bn following the launch of a new deposit platform in 2017, while management also plans to launch a cash individual savings account (Isa) before the end of the year in the hope of reducing funding costs.

Analysts at Shore Capital expect adjusted net tangible assets of 1,313p at the December 2019 year-end.

SECURE TRUST BANK (STB)  
ORD PRICE:1,360pMARKET VALUE:£252m
TOUCH:1,360-1,390p12-MONTH HIGH:2,120pLOW: 1,130p
DIVIDEND YIELD:6.1%PE RATIO:9
NET ASSET VALUE:1175pLEVERAGE:11.6
Year to 31 DecTotal operating income (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20146417.58368
20159224.810672
201610719.47875*
201713025.010879
201815234.715383
% change+17+39+42+5
Ex-div:25 Apr   
Payment:24 May   
*Excludes special dividend of 165p a share, following sale of ELG