One banking stock I’d buy over Barclays plc

This challenger looks set to leave Barclays plc (LON: BARC) in the dust.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

With the shares up almost 3% this morning it seems that the market welcomes the positive-looking interim results figures from OneSavings Bank (LSE: OSB).

The firm continues to make good progress with underlying earnings per share lifting just over 22% compared to a year ago and 10% growth in the loan book. The directors expressed their confidence in the outlook by raising the interim dividend 21%.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

High-growth potential

OSB is one of a breed of new so-called challenger banks operating in the UK and started trading during February 2011. The founders set up the firm to target what they identified as “under-served market sub-sectors that offer high growth potential and attractive risk-adjusted returns.”  That means lending to the private buy-to-let market, providing commercial and semi-commercial mortgages, delivering residential development finance, and dealing in bespoke and specialist residential lending and secured funding lines.

The company funds its lending with retail savings through its well-established Kent Reliance brand via online, postal and branch operations. It’s a classic banking set-up where incoming savings fund outgoing loans and the bank pockets the difference in interest rates.

Chief executive Andy Golding reckons the firm has performed well despite “significant” regulatory and tax change affecting the buy-to-let market during the first half of the year. Despite the changes, which seem to make buying and letting properties less financially attractive for individual landlords, Mr Golding says application levels in the core businesses for the third quarter “remain strong”. He thinks the firm’s focus on “professional landlords” will soak up buy-to-let landlords switching to that sector. Indeed, the tax treatment of landlords carrying out their activities through limited companies looks kinder and I reckon many will make the change.

Decent progress

The company expects percentage growth in the loan book to run in the high teens for 2017. Meanwhile, City analysts following the firm predict a 14% increase in earnings this year and 8% during 2018. That’s decent progress, and at today’s share price of 400p you can pick up some of the firm’s shares for a forward price-to-earnings ratio of 7.8 for 2018. The forward dividend yield runs just over 4% and forward earnings look set to cover the payout more than three times.

I think that challenger banks such as OSB, free from legacy issues and with entrepreneurial cultures and directors, have a far better chance of thriving than the old-guard dinosaurs such as Barclays (LSE: BARC). In fairness, Barclays told us in June with the interim results statement that its restructuring in the wake of last decade’s financial crisis is complete and the business is now “radically simplified.”

However, the firm is still working through past conduct issues and it is still a lumbering beast of a business that seems unlikely to beat the likes of OSB when it comes to growth. City analysts following Barclays reckon earnings will rebound 36% during 2017 and 28% in 2018, but I think the firm will struggle to grow earnings at a double-digit clip beyond that, so I’d rather take my chances with OneSavings Bank.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Kevin Godbold does not own shares in any of the companies mentioned in the article. The Motley Fool UK has recommended Barclays. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

More on Investing Articles

Tabletop model of a bear sat on desk in front of monitors showing stock charts
Investing Articles

3 reasons why the stock market is falling today

Jon Smith explains several factors that are contributing to the stock market falling today, and his thoughts on them.

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

2 stocks that are great long-term picks

As recession fears weigh on share prices, our author has found two stocks with strong long-term prospects. He’s looking at…

Read more »

Tanker coming in to dock in calm waters and a clear sunset
Investing Articles

2 lesser-known penny stocks to buy now and hold for 10 years!

I’m currently looking at penny stocks that could help my portfolio grow over the next 10 years. Despite recent volatility,…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

Here’s 1 of the best stocks to buy for passive income

Jabran Khan delves deeper into one of the best stocks to buy for passive income, which is a FTSE 100…

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

IAG shares are down 15% amid travel chaos! Is now the time to buy?

IAG shares have collapsed over the past month. Shareholders had hoped for a strong Q2. But maybe this represents a…

Read more »

Shot of a young Black woman doing some paperwork in a modern office
Investing Articles

UK shares: 1 dividend stock I own to combat inflation

This Fool is looking for quality UK shares to combat inflation through consistent and stable returns as well as growth…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

Here’s how I’m investing as stock market volatility soars!

2022 has seen an explosion in stock market volatility. But with the right approach I think ongoing choppiness could turbocharge…

Read more »

Business development to success and FTSE 100 250 350 growth concept.
Investing Articles

2 top FTSE 100 shares to buy before a new bull market

On my search for FTSE 100 shares to buy before the recovery, I have found two growth options that could…

Read more »