Secure Trust Bank - Solid interim results

Secure Trust Bank (STB) reported H122 PBT of £24.7m, including an £8.1m gain on the disposal of its Debt Managers Services (DMS) unit. Reported return on equity (ROE) was 12.5%, and the underlying ROE was 8.3%. Pre-provision operating profit was up 22% y o y driven by a 23% increase in core loans. Underlying earnings were down 52% y-o-y as impairments returned to a normal level (annualised 1.4% of loans in H122) after the unusually large COVID-19 related loan reversals in H121. STB’s capital position remains strong (CET1 14.0%), but we expect the deteriorating UK economic outlook to lead STB to pare down its balance sheet expansion. We are reducing our forecasts to reflect this slowdown: we have cut EPS in FY22e by 6% and FY23e by 12%. Despite the cut, momentum is still good; we forecast a 13% increase in loans in FY23 with a 29% increase in underlying earnings and 11.6% ROE. We have reduced our fair value (FV) from 2,491p to 2,407p, as we have cut our sustainable ROE assumption from 13.5% to 13% due to macro concerns.