Arbuthnot Banking Group Update: 2012 Results In Line With Expectations
Edison | Jan 21, 2013 03:08AM ET
Arbuthnot Banking Group (ARBB.L) released a trading update confirming 2012 results are in line with market expectations. The expected franchise growth continues to be delivered in both the retail bank, Secure Trust (STB) and in the private bank. STB has recently supplemented organic growth with modest acquisitions including V12 (completed 3 January) and Debt Managers (announced 15 January). ABG continues to be valued well below its stake in STB.
Trading update
The short trading update confirms 2012 pre-tax profits are expected to be in line with market expectations. STB is reported as having strong demand and the private bank has been recruiting staff in Q4 with a strong finish from the structured products unit, Gillat Financial Solutions. We do not expect this statement to be price sensitive.
STB’s acquisitions
As noted in the placement documentation, ABG’s 70.7% owned subsidiary, STB expected to continue expansion through acquisition. On 24 December 2012 it announced the purchase of the entire share capital of V12 group, the predominately prime retail point-of-sale business, for £3.5m (estimated NAV £3.4m). V12 brings an incremental £35m of loans (STB had £60m of point-of-sale loans at September 2012) with both growth potential but also funding savings. The deal completed on 3 January.
On 15 January STB announced the acquisition of a debt manager which collects outstanding balances on behalf of banks and other blue chip clients. The initial consideration is £0.36m and there is a potential deferred consideration of a further £0.4m for assets which are expected to be fair valued at £0.76m on completion.
Valuation: Still well below STB stake
We have updated our numbers to include the acquisition of V12 and Debt Managers with a modest profit uplift in 2013. The beneficial effect on valuation of this is offset by the one-off costs of £800k for the acquisitions (taken in 2012). The main uplift from these deals is in 2014. This, and the expected organic growth, should see a marked increase in profit and NAV. The latter will increase the Gordon’s Growth valuation by nearly £1 if we use 2014 NAV (to 767p) compared with 2013 NAV. The sum of the parts model has increased markedly (from 963p to 1,180p) with a sharp rise in the market value of ABG’s stake in STB which is now valued at £192m compared with its ABG’s market capitalisation of just £128m.
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