Arbuthnot Banking Group £20m Share Placement By Secure Trust

On 20 November, Arbuthnot Banking Group’s (ARBB.L) subsidiary Secure Trust Bank (STB) placed 1.48m new shares at 1,350p, raising c £20m at a 4.9% discount to its prior closing price. STB also outlined the multiple organic and inorganic growth opportunities. ABG is taking £5m of the placement and will see its stake reduce from 75.5% to 70.7% (which on current market valuations is worth c £155m).

Deal terms
A net £19.2m has been raised by issuing 1.48m shares at 1,350p (a modest 4.9% discount to the previous closing price). This will increase the group’s already strong equity base by c 40%. STB will repay a £5m subordinated loan from Arbuthnot Banking Group and use the residual £14m to fund growth.

STB organic growth opportunities
STB has already grown its organic business very rapidly and there are a number of strategic options to accelerate this. With the recent announcement, STB advised it is in discussions for a multi-year distribution agreement with a retail bank. It is also in discussions over providing finance for a large online retailer, is expanding the Everyday Loans network and looking at secured finance and ways to promote its current account offering. While these opportunities may not all complete, we expect others will develop as major lenders have limited appetite or capacity to lend. While STB is growing rapidly, it is still tiny in the overall banking market and can manage credit risk by being selective about which niches to exploit.

STB inorganic growth opportunities
Acquisition has been part of the stated strategy and this year we have seen the Everyday Loans deal. With the recent announcement STB said it was in advanced discussions for two other deals. The first is a retail point-of-sale finance provider with c £39m loans and the second is a collections business. These deals may not complete but there will be many other opportunities for growth.

Valuation: Around one-third upside
The rapid placing of the STB stock shows there is strong investor interest in the company and suggests ABG’s stake is more liquid than may previously have been believed. To have ABG’s own market cap under £100m while its stake in STB is over £155m appears highly anomalous. Our valuation approaches indicate a fair value of c 816p.

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