Although finance-related stocks have been through some turmoil, traditionally it’s been one of the best long-term businesses to be in. And with banks and investment firms looking steadier than they’ve been for years, it could be a very good time to buy.
Better than cash in the bank
If you want a bank dividend that was untroubled by the financial crisis, look no further than Arbuthnot Banking Group (LSE: ARBB). Yields might not have been high, but the occasional special payment more than makes up for that.
The year just ended in December 2016 was no exception, with ordinary dividends lifted 6.9% to 31p — for a yield of 2.1% on today’s share price of 1,476p.
But that was overshadowed by the payment of special dividends during the year of 325p per share, which is pretty impressive for a bank that saw net assets per share rise by 23% during the year and climb nearly sevenfold in the past six years. If you want to invest in a company that’s good at generating cash, you could do a lot worse than going for Arbuthnot.
The rest of the figures looked impressive too, with Arbuthnot Latham customer deposits up 11% to £998m, written loan volume up 39% to £227m, and assets under management up 16% to £920m.
Chairman and chief executive Sir Henry Angest described the year as a “momentous and highly profitable” one, in which a number of corporate transactions should allow it to develop over time “into a more significant private and commercial bank“.
What about valuation? We’re looking at a 2018 P/E of a bit over 18 based on current forecasts. That looks a bit high by long-term FTSE standards — and it’s around twice the valuation of Lloyds Banking Group.
But Arbuthnot might just be the best managed bank out there.
IFG Group (LSE: IFP) shareholders seem less pleased today as their shares dropped 9% to 136p, after the financial services group revealed a fall in 2016 profits which was blamed on falling interest rates.
While the group’s James Hay and Saunderson House subsidiaries saw combined revenue perk up by 10% to £78.5m, overall pre-tax profit from continuing operations fell 26% to £6.4m and IFG’s adjusted earnings per share dropped by 7% to 7.57p.
There were exceptional costs to the tune of £1.7m too. But the reaction looks a little overdone to me, as the balance sheet firmed up a little with net cash up 3.3% to £28.2m and there’s no debt on the books. Chief executive John Cotter said: “We enter 2017 with both businesses in stronger positions than last year” and spoke of “positioning the group for sustainable growth“.
Forecasts do make the shares look attractive, with two strong years of earnings growth dropping the P/E to only around 12.5 by 2018. We’re also looking at attractive PEG valuations of 0.3 this year and 0.7 next, and it’s pretty rare for a financial services firm to exhibit attractive growth prospects like that.
But it’s the long term that counts, and I see see IFG’s progressive dividend policy as a big plus, with a 2018 yield expected to reach 4%. The firm’s markets, serving high-net-worth clients, should also be quite lucrative over the next decade and more, and I see IFG as one to buy and tuck away for years.