Section 1.0. UK Financial Services Sector Landscape, Trends & SWOT Analysis

The financial services sector includes the financial and professional services related to banking, asset management, infrastructure financing, management consultancy, fintech, wealth management, venture capital, insurance, and accounting. The sector shall provide resilience to the economy to withstand an expected recessionary scenario as it would provide support through debt repayment deferrals, insurance premium wavers, and availability of affordable credit. It would also drive investment and help the economy bounce back once the inflationary condition and macroeconomic uncertainties subside. As per the House of Common Library, the UK financial service sector contributed £173.6 billion to the UK economy in 2021, representing 8.3% of total economic output. London generates nearly half of the sector’s output. The financial services sector also generated a trade surplus of £44.7 billion, with imports and exports of £16.6 billion and £61.3 billion, respectively. Overall, it is the fifth largest sector in terms of overall output.

Recently, British Government has announced its intentions to review its financial regulations, including relaxation of the rule that requires banks to separate their retail operations from their investment arms. The Government has already announced that it would scrap a restriction on bankers' bonuses and allow insurance companies to invest in long-term assets. It can help building a more competitive financial services sector and boost the U.K.’s sluggish economic growth.

Section 1.1. Trends in the Financial Services Sector

Section 1.2. SWOT Analysis

Section 2.0. Sector Risks & Opportunities

Section 2.1. Risk Exposures to Financial Services Sector

Section 2.2. UK Financial Services Sector Outlook

Financial institutions would play a vital role to navigate the economy through the prevailing market uncertainties for a bright future. As economies are struggling through heightened inflationary pressure, central banks have started to increase interest rates. Higher rates would eventually boost the net interest margins of banks. However, economic slowdown and ongoing cost-of-living crisis can impact consumers’ appetite for spending in the short-term. In the current market uncertainties, fueled by supply chain bottlenecks and geo-political tension, the financial services sector can provide a good choice for value investors as regulators have started to ease up on financial institutions to boost economy, while digital banking services can reduce cost and bring productivity in the sector.

After gaining insights into the Financial Services sector, we will look at the business model of two relevant players listed on the London Stock Exchange.

Section 3.0. Paragon Banking Group PLC (Buy at GBX 528.00, closing market price of 13 December 2022)

3.1 Company Details

3.2. Key Metrics in Pictures

3.3 Valuation and Technical Guidance

Section 4.0: Admiral Group PLC (Buy at GBX 2,052.00, closing price as on 13 December 2022)

4.1 Company Details

4.2. Key Metrics in Pictures

4.3 Valuation and Technical Guidance

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance level is 13 December 2022. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Note 6: Dividend Yield may vary as per the stock price movement.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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