| Edison Investment Research Limited
London, UK, 8 April 2022
Secure Trust Bank (STB): FY21 earnings beat with momentum Secure Trust Bank (STB) reported FY21 PBT of £56.0m (£57.4m normalised, we forecast £52.7m) and a ROE of 15.9%. The beat was driven by provision reversions: the loan loss ratio was 0.1% versus 0.3%. The numbers otherwise were in line with our expectations. Revenue was flat year-on-year, but pre-provisions profit fell by 18% since costs rose 12% as STB invested for growth. We are forecasting 15-17% annual loan growth for FY22-23 as management sees good risk-adjusted opportunities despite the inflation uncertainty. This is backed by a strong capital base (CET1 14.5%) and good returns (forecast ROE of 10.2% and 12.3% for FY22e and FY23e). We have increased our fair value to 2,491p/share (from 2,234p) mainly due to rolling the model forward one year. We obtain a fair value (FV) of 2,491p per share using a net asset value (NAV) approach. We continue to assume a sustainable return on equity (ROE) of 13.5%, a 10% cost of equity (COE) and 2% annual growth. The FV is the present value of the (ROE-g)/(COE-g) formula at end 2022 discounted to FY21. The 2,491p value implies an FY22e P/BV of 1.4x; STB is currently trading on a 0.74x P/BV ratio.
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