Secure Trust Bank Plc

Secure Trust Bank Plc (LON: STB) is the United Kingdom-based retail bank, providing saving account and lending services with over 950 employees.

On 12 May 2021, the Company will hold its Annual General Meeting.

Rationale for Valuation – Sell at GBX 1,195.00

• Trading near a 52-week high, while on a trailing 12 months, Price/Earnings and Price/Cash Flow multiples of STB are currently higher than the corresponding multiples of the Banking Services industry, reflecting overstretched valuations.
• The Company has reduced its number of customers, with a decrease in total new business lending volumes.
• From the technical standpoint, 14-day RSI is supporting downward movement (around 56.81 level), which means the stock price could decline in the short term.

Key Risks

• The outlook remains uncertain, and the economic fragility will continue for at least the rest of the year. This may impact financial performance.
• The external risks faced by the Company may also impact the success of delivering against STB’s long-term strategic objectives.
• The Covid-19 outbreak has impacted many of the customers’ business models and income.

Financial Highlights (for the year ended 31 December 2020 (FY20), as on 25 March 2021)

(Source: Company Website)

• Total customer numbers decreased by 3.9% YoY; however, the Company has maintained its customer satisfaction scores (as measured by FEEFO).
• Total new business lending volumes reduced by 27.1% YoY, with a decrease in total consumer finance balances of 11.6% YoY.
• Customer deposits stood at £1,992.5 million, with the management of the mix of the savings book contributing to an improvement in cost of funding to 1.8% from 2.0% (net of interest on swaps).
• The Company will propose a 2020 final dividend per share of 44 pence.

One Year Share Price Chart

(Source: Refinitiv, Thomson Reuters)

Valuation Methodology: Price/Book Value Approach (NTM) (Illustrative)

Conclusion

The Company saw a decent performance in 2020, with a decline in new business lending volumes, consumer finance balances and customer numbers. Moreover, the business demand and lending volumes were impacted by the Covid-19 pandemic scenario. Led by an increase in provisions, the profit before tax for 2020 reduced by 48.1% YoY. Overall, the remainder of the year remains cautious as the uncertainty surrounding the UK's exit from the European Union. Currently, the stock is trading near its 52-week high, suggesting that the upside potential might be limited. Therefore, it is advisable to book profit as of now, considering global headwinds persisting currently due to the pandemic and the impacts of the UK exit from the European Union. The stock made a 52-week low and high of GBX 524.93 and GBX 1,265.00, respectively.

Based on the poor fundamentals, uncertain outlook, economic downturn, and valuation conducted above, we have given a “Sell” recommendation on Secure Trust Bank at the current price of GBX 1,195.00 (as on 30 April 2021 at 10:38 AM GMT), while we will look forward to reinvesting at the right time when the due corrections are being done, and we have more clarity regarding the profitability and guidance.

Vianet Group Plc

Vianet Group Plc (LON: VNET) is a FTSE AIM All-Share-listed technology service provider that offers business insights through the internet of things (IoT) capabilities.

On 15 June 2021, the Company will release its results for the financial year ended 31 March 2021.

Rationale for Valuation – Sell at GBX 103.40

• Trading near a 52-week high, while on a trailing 12 months, EV/EBITDA and Price/Earnings multiples of VNET are currently higher than the corresponding multiples of the Software & IT Services industry, reflecting overstretched valuations.
• In FY20, the net margin and ROE were in the negative zone.
• From the technical standpoint, 14-day RSI is supporting downward movement (around 66.11 level), which means the stock price could decline in the short term.

Key Risks

• Moreover, the Company operates in multiple geographies, and the profits can be impacted negatively due to foreign exchange rate fluctuations.
• Current market dynamics are volatile and challenging, which may have a negative impact on business operations in the near term.

Trading Update as on 14 April 2021

• The Company saw various growth opportunities with rationalising operations, providing a strong platform and customers, effectively managing cash.
• In H2 FY21, the free operational cash flow was neutral, supported by a slight improvement in the H1 financial performance.
• The Company expects an adjusted operating loss to be £0.7 million, with around £1.1 million of operational cash generation.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

Conclusion

Despite this global crisis, Vianet expects a strong financial position in the near term, with the decent growth opportunities that lie ahead. The Company’s operations can be affected negatively due to ongoing uncertainties created over the Covid-19. As the Company operates in multiple geographies, the profits can be impacted negatively due to foreign exchange rate fluctuations. Currently, the stock is trading near its 52-week high, suggesting that the upside potential might be limited. Therefore, it is advisable to book profit as of now, considering global headwinds persisting currently due to the pandemic and the impacts of the UK exit from the European Union. The stock made a 52-week low and high of GBX 59.00 and GBX 105.00, respectively.

Based on the uncertain outlook and economic downturn, we have given a “Sell” recommendation on Vianet Group at the current price of GBX 103.40 (as on 30 April 2021 at 1:04 PM GMT), while we will look forward to reinvesting at the right time when the due corrections are being done, and we have more clarity regarding the profitability and guidance.

*All forecasted figures and Peers/ Industry information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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