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We don’t often look at smaller banks, but we were interested to see Secure Trust Bank (LON:STB) reporting a strong Q3 performance last week, which seems to be driven by a rise in net lending.

Shares in the Solihull bank have been struggling recently, with the stock coming off a recent peak in August to trade at around 1110 before it announced its numbers. But now they seem to be building momentum.

The market looks pleased with the numbers; shares are up now at 1240p, and the bank has the potential to return more. It reported net lending was up at £2.4bn from £2.25bn in Q3 2020. It’s also up against 2Q. New business lending is also up substantially and new CEO David McCreadie (formerly of Tesco Bank) is making all sorts of bullish noises about growth in Secure Trust’s consumer and business finance segments.

Secure Trust Bank is trading in line with guidance issued in its 12 July trading update. The core lending book is now up 3.3% quarter on quarter and 7% year on year. Motor finance business is up 15% in three months. New business lending is up an impressive 59% against 12 months ago.

“We…believe that if STB maintains this growth pace, its loan book is likely to come in 3-5% above our year end forecasts,” said Pedro Fonseca, analyst with Edison Investment Research. “Although there was no formal statement on either asset quality or interest margins, management stated that the bank is trading in line with its guidance from the July update.”

Edison said that despite the good news, it was maintaining its estimates for now, and that its fair value remains unchanged at 2234p per share, using Edison’s net asset value approach.

Diversified commercial lending operation

Secure Trust Bank is active in a diversified range of lending segments, including motor finance, hire purchase, personal contract purchase, and dealership finance. It acquired V12 Retail Finance in 2012 which has allowed it to build a share in the point of sale loans market in the UK, which is lucrative.

We are always tempted to look at banking stocks from a pre-pandemic versus post-pandemic valuation model. Many bank shares have been hit hard by the pandemic and its impact on their end customers, especially those banks with heavy exposure to commercial lending. Secure Trust Bank shares show many of the characteristics of a post-pandemic recovery play.


A year ago Secure Trust Bank shares were trading at around 630p which was nearly as low as they got after COVID hit. Since then the stock has been steadily appreciating in value as the UK economy has started to shrug off some of the effects of the pandemic and the government has remained proactive about supporting businesses. The shares are still not back to where they were before COVID however.

Secure Trust Bank stock still looks cheap

Secure Trust Bank still looks ludicrously cheap with a 2021 estimated PE ratio of about 5.86 according to Stockopedia (12 month rolling is about 6.15). It is covered by four brokers, who maintain a consensus of strong buy. Consensus price target is 1797p. That’s still a long way from where it is currently trading, which is 1240p.

Budget day tomorrow, so there are some possible risk factors for smaller banks in the Chancellor’s speech, but that aside, the momentum seems to be gathering behind Secure Trust Bank with the 50 day MMA at +1.46% and the 200 at +10.5%. Keep an eye on this one if you like banks.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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