Model Update (free download): Secure Trust Bank Plc
Key facts based on prudent assumptions: 49.8% margin of safety, 3.85x P/E, 0.4x P/B, 11.3% 5yr Avg ROE, >80% of customer deposits from fixed term bonds & notice accounts, 57% average LTV on RE lending
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Model update key facts (free model download below):
Fair value estimate at 1,337p, giving margin of safety 49.8%
Cost of equity applied: 11.46%
P/E (CY): 3.85x
P/B: 0.4x
11.3% 5yr avg. ROE
Conservative ECL loss assumptions for FY23 & FY24
Stalled lending growth in FY24 before modest growth thereafter
Interest margin & cost of funds assumed flat
Conservative cost to income ratio assumption 55% (vs mgmt. target 50%)
Conservative ROE trending to 8% - 9% (vs mgmt. target 15%)
If a 15% ROE were achieved over the long-term, the fair value would exceed 2,000p
Financials Summary
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Business background
See detailed write-up here:
Key Advantages
Very long established business (established 1954);
Consistent strong performance over last decade (average ROE 11.3% over last 5yrs);
Long behavioural duration deposit base;
No deterioration in credit quality to date, the bank focuses on prime customers and have an average LTV on real estate lending of <60%;
Very attractive valuation.
Key risks
Rising competition for deposits may mean either/or deposit outflows or greater cost of funds;
Cyclical in nature;
Deterioration in economic conditions could result in greater credit losses.
Thanks for reading!
Eddie