Investec PLC

Investec PLC (LON: INVP) is a London, United Kingdom-based specialist bank and asset manager group. It offers a range of financial products and services to a selective client base.

On 21^st May 2020, the company will announce its full-year results for the 12 months ending 31 March 2020.

Pre-Close Trading Update (as on 20^th March 2020)
The company has released its pre-close trading update ahead of its full-year results for the FY2020. The Group’s adjusted operating profit is expected to be in the range of 7%-14%, lower than FY2019. The adjusted earnings per share are expected to be 16%-23% behind FY2019, primarily due to the challenging market conditions mentioned above and effective tax rate normalisation. The Group’s cash and near-cash as at 18 March 2020 was reported at £12.4 billion. Capital and leverage ratios stay sound, ahead of regulatory requirements and internal targets. The Net asset value of the group is expected to be in the range of 425p-450p, and the tangible net asset value is expected to be between 385p and 405p as at 31 March 2020. The company has navigated challenging conditions, worsened recently by the continuing public health and economic effects of coronavirus (COVID-19) outbreak.

Share Price Performance

Daily Chart as on 25^th March 2020, before the market closed (Source: Thomson Reuters)

On March 25, 2020, Investec PLC shares were trading at GBX 146.95 at the time of writing before the market close (at 11:30 AM GMT), up by 4.55% per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 407.22/GBX 122.55.

From the technical standpoint, 14 days relative strength index of the stock was favourable, and prices could rise further from the current trading level.

Valuation Methodology
 

Valuation Metrics

(Source: LSE)

As on 28^th February 2020, the Price to Book Value multiple was lower as compared with the Financial Services industry multiple, which shows that the company is undervalued as compared to its peers.

Conclusion
Despite a challenging market condition, the company has delivered a resilient performance in the current period. The company has continued to invest in the platforms to attain sustainable growth for the long term and has also made notable progress in the simplification of the business. In these present difficult times, the group is resolutely focused on the integrity of the balance sheet, the safety of the people, and supporting the clients. Investec stays optimistic about the longer-term potential. The customer franchise businesses have made strong growth as evidenced by robust net inflows and progress in assets under management, customer deposits, and loan book. In the upcoming financial year, the Wealth and Bank division stay fully committed to delivering its targets. This growth is driven by the long track record of increasing AUM and continued revenue growth. The company’s net income has grown from GBP 245.5 million in FY2015 to GBP 531.1 million in FY2019, giving approximately 21.28 per cent growth on a CAGR basis.

Based on the decent prospects, and supported by valuation done using the above method, we have given a “BUY” recommendation at the closing price of GBX 140.55 (as on 24th March 2020) with lower double-digit upside potential based on 0.38x NTM Price/Book Value (approx.) on FY20E book value per share (approx.).

Secure Trust Bank PLC

Founded in 1952, Secure Trust Bank PLC (LON: STB) is the United Kingdom-based retail bank, providing saving account and lending services with over 950 employees.

Recent News
On 12^th March 2020, Secure Trust Bank Commercial Finance has provided the asset-based lending facility of GBP 8.5 million to bolster its working capital and support the growth plans.

Covid-19 Update (as on 24^th March 2020)
Following the request by Financial Conduct Authority (FCA)for observing disruption pertinent to Coronavirus outbreak, Secure Trust Bank has deferred its audited annual results (scheduled on 26^th March 2020). The Group has been implementing plans to manage the operational and economic impact with market uncertainties. Management also affirmed that the group had entered 2020 with double-digit percentage growth in profit before tax; however, considering the impact influenced by Covid-19, the group is suspending the final dividend for 2019. On 15^th January 2020, when the group released their last trading update, they mentioned about revenue and loan book growth in the second half of FY2019 despite stagnant GDP and dampened demand of consumer and housing finance.

 Share Price Performance
 
Daily Chart as of March 25^th, 2020, before the market close (Source: Thomson Reuters)

Secure Trust Bank Group’s shares were trading at GBX 784 at the time of writing before the market close (at 12:23 PM GMT) on 25^th March 2020 and up by 6.67% versus the previous day closing price. Stock's 52 weeks High is GBX 1,730.00 and Low is GBX 680.00.

From the technical standpoint, 3 days, 9 days and 14 days relative strength index of the stock was favourable (oversold); and prices would rise further from the current trading level.

Valuation Methodology


Growth Catalyst
The Group has entered FY2020 with double-digit growth in profit before tax and strong new business pipelines with robust capital and liquidity position to meet its strategic objectives.

Conclusion
Going forward, the Group is expecting a positive response to the General Election result and eventually recovery in UK equity prices and rising market interest and residential and commercial property assets.

The group has confirmed that despite the challenging business environment of flat GDP and moderate demand for consumer and housing finance, the full-year results are expected to be aligned with market expectations.

Over the four years (FY14 - FY18), the company’s revenue surged from GBP 79.50 million in FY14 to GBP 188.60 million in FY18. Compounded annual growth rate (CAGR) stood at 24.11 per cent.

Based on the above rationale and supported by valuation done using the above method, we have given a "Speculative Buy" recommendation at the current price of GBX 733 (as on 25^th March 2020, before the market close at 8:48 AM GMT) with lower double-digit upside potential based on 0.54x NTM Price/Book multiple (approx.) on FY20E Book Value per share (approx.).
 
 
*All forecasted figures and peers have been taken from Thomson Reuters.
*The “Buy” recommendation is also valid for the current price as covered in the report (as on 25th March 2020).

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