Bank a profit ... by investing in one that’s growing fast
BANKING can seem like a complex business, filled with complicated financial instruments and rarefied jargon that make little sense to the average investor.
Andy Golding, chief executive of OSB Group, takes a different approach. A dyed-in-the-wool money man, he left school at 16, took a job at NatWest and has been in the industry ever since. His philosophy is to keep banking simple and the approach has served him well.
When OSB floated on the stock market in 2014, the shares were £1.70 and the business was valued at just over £400million. Today, the savings and specialist lender group is worth more than £2.25 billion and the stock is trading at £5.01.
The price should continue to increase. Golding has put together a business with lower costs, higher profit margins and stronger customer loyalty than virtually all its peers. A third-quarter trading update last week provided fresh reassurance, with plenty of new business and a confident statement about the future.
The group was formed in 2011, when Kent Reliance Building Society was rescued by American private equity firm, JC Flowers. Golding was brought in a year later to help turn round a struggling business. Since then, OSB has grown organically and through a series of well-timed acquisitions. It now comprises several distinct firms, each designed to appeal to slightly different customers.
Savers can plump for Charter Savings Bank or Kent Reliance. Charter is targeted at digital-savvy savers. Kent Reliance has a branch network complete with passbooks for those who want them, as well as online services.
On the borrowing side, OSB offers specialised mortgages via Kent Reliance and two other subsidiaries, Precise Mortgages and Interbay. Customers are primarily professional and semi-professional landlords, with substantial portfolios of flats and houses. The group also lends to individual borrowers who find it hard to secure a mortgage on the high street, such as small business owners and the self-employed.
Across these diverse businesses, Golding, 52, sticks to three key principles. Most of the group’s funding comes from long-term retail savers, lending is secured against solid property portfolios run by experienced owners and service is paramount.
The group has a wholly-owned business in India too, which provides most back-office services and a call centre. Many UK companies have fallen foul of outsourcing to India but OSB owns its subsidiary in Bangalore outright so training is comprehensive, staff are educated to graduate or masters’ level and customer satisfaction levels are extremely high. At the same time, costs are far lower than they would be in the UK, allowing OSB to generate robust profits while offering attractive rates to savers and borrowers.
Brokers expect full year profits to increase by more than 60 per cent to around £425million, while dividend payments are forecast to rebound from 14.5p to at least 21p. With a strong balance sheet and capital position, Golding may well deliver share buybacks and special dividends next year too.