Arbuthnot Banking Group Plc (LON:ARBB) is the topic of conversation when Hardman and Co’s Analyst Mark Thomas caught up with DirectorsTalk for an exclusive interview.
Q1: Arbuthnot Banking, what were the key take-aways from its half year results?
A1: ARBB is delivering the strong profit and franchise growth which it promised and its delivering it, that’s the key message.
What we saw in the first half was the with underlying profits rose from £3.2 million in the first half of last year to £4.2 million in the first half of this year. Our 2019 underlying profits are just under double the level that we saw in 2017 and that’s encouraging. The results we’ve seen in the first half have given us encouragement that that’s actually going to be achievable. It’s worth noting that the loans and deposits were both up 25% on the first half of which has driven a 25% increase in income.
So, strong growth as promised, strong growth delivered.
Q2: How do you see them on costs?
A2: Costs rose 24% so marginally less than income but what we had was a very heavy investment in a number of new business lines and obviously some volume-related cost for the volume of loan growth.
These new initiatives in asset-based lending, specialist bridging finance, they’re launching a property fund and an online savings platform all of which saw some costs from the first half, but the revenue really won’t kick in properly until 2019.
So, that 24% cost growth, still less than revenue growth, actually includes heavy investment for future revenue growth which bodes very well for the group.
Q3: Impairments were just 208,000, how have they achieved that?
A3: Private banking is a little bit unusual and for Arbuthnot Banking specifically, is lending is all secured on property at low loans to value, so you’ve got security on property, even in some headline cases you’ve got hard property as security. In addition, though, what most clients have is significant other assets such as investment portfolios, maybe in equities, and Arbuthnot can tap into those as well.
So, what you have is very good security compared to what might be considered for mainstream lending, we think impairments will rise here but very gently.
Q4: What is their funding and capital position like?
A4: Well, loans at the half-year were £1.1 billion and they had deposits of over £1.5 billion so deposits well exceeding loans. Arbuthnot has always managed its balance sheet conservatively and this continues to be the case.
In terms of capital, we think it’s got around £40 million of excess capital to be deployed in future strong growth, we see retentions rising, there’s a potential sale of a further stake in Secure Trust Bank and it’s got the option to gear with non-equity capital issuance.
In summary, it’s extremely well placed with both funding and capital to support further very strong growth.