No divi yet from OneSav­ings Bank – but it could re­turn in six months’ time. Hold

The buy-to-let lender is hold­ing up well in spite of the nu­mer­ous chal­lenges that all banks face, writes Russ Mould

The Daily Telegraph - Business - - Business -

WHO on earth would want to be a bank right now? The Western world is al­ready heav­ily in­debted. Reg­u­la­tion is tight. The eco­nomic fall­out from the pan­demic raises the prospect of bad loans and lower earn­ings. To cap it all, cen­tral banks’ poli­cies of low in­ter­est rates and quan­ti­ta­tive eas­ing are crush­ing profit mar­gins on loan books. It is an un­remit­tingly grim pic­ture.

And yet banks come with one sav­ing grace: none of this is new and it can there­fore be ar­gued that val­u­a­tions al­ready re­flect this treach­er­ous en­vi­ron­ment, es­pe­cially af­ter a pe­riod of ter­ri­ble per­for­mance.

For the record, the banks sec­tor is the third-worst per­former in the FTSE so far this year, af­ter a 47pc fall; only oil and gas pro­duc­ers, and au­to­mo­biles and

parts, trail be­hind.

OneSav­ings Bank, first as­sessed by this col­umn at 341p in Novem­ber 2018, there­fore rep­re­sents a bit of a co­nun­drum. We have made a small pa­per loss (al­beit one ame­lio­rated by div­i­dends re­ceived) on a stock that lies in a sec­tor be­set by bad news.

Yet its £1.3bn mar­ket value rep­re­sents a dis­count to net as­set value of £1.6bn, so the shares are al­ready cheap and sen­ti­ment de­pressed amid con­cerns over what will hap­pen to the hous­ing mar­ket once the fur­lough scheme be­gins to un­wind. OneSav­ings Bank, in the eyes of some, ef­fec­tively dou­bled down on the buy-to-let mortgage mar­ket when it merged with Char­ter Court Fi­nan­cial Ser­vices last year.

Bet­ter still, last month’s in­terim re­sults were bet­ter than an­a­lysts had pre­dicted, not least be­cause the bar for ex­pec­ta­tions had been set low thanks to the pre­vail­ing gloom. Granted, net in­ter­est mar­gins fell and the un­der­ly­ing loan loss ra­tio rose to 0.6pc from 0.1pc. But the loan book grew by 2pc and costs were reined in with the re­sult that un­der­ly­ing pre-tax prof­its fell by just 14pc, no mean achieve­ment against this eco­nomic back­drop.

OneSav­ings also re­mains ex­tremely well cap­i­talised, with a “com­mon eq­uity tier one” ra­tio of 17.4pc. That should al­low the bank to with­stand any buf­fet­ing it gets from the hous­ing mar­ket, where the lat­est data on mortgage ap­pli­ca­tions and price rises of­fer grounds for en­cour­age­ment any­way, rather than the op­po­site.

Just like 2019’s fi­nal div­i­dend, this year’s in­terim was passed, but

man­age­ment will take a fresh look along­side the full-year re­sults. An­a­lysts are pen­cilling in a divi of 8.33p a share and that could be one cat­a­lyst to per­suade in­vestors to re­visit the stock.

Fur­ther pos­i­tive signs from the econ­omy and hous­ing mar­ket would help too – although the op­po­site also holds true – so the com­bi­na­tion of OneSav­ings’ lowly val­u­a­tion and well­but­tressed bal­ance sheet means we shall re­main loyal for now.

Value stocks such as this re­main res­o­lutely out of favour, as tech­nol­ogy and growth names con­tinue to run riot, but we shall stay pa­tient. Hold.

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.