Why I’d Buy Aldermore Group PLC And Standard Life Plc Before Banco Santander SA

Since listing on the stock market in March of this year, shares in challenger bank, Aldermore (LSE: ALD), have performed exceptionally well. In fact, they have risen by 30% and this performance is above and beyond the majority of finance stocks, as well as the wider index.

Looking ahead, further strong performance could be on the cards. That’s at least partly because Aldermore is operating amidst excellent trading conditions that are allowing it to increase the size of its loan book and grow its customer numbers and profitability. And, with the UK economy moving from strength to strength and being one of the fastest growing economies in the developed world, the outlook for Aldermore looks to be very bright.

For example, Aldermore is expected to increase its bottom line by 49% in the current year, followed by growth of 31% next year. That’s an astounding rate of growth and means that the bank’s net profit could be as much as 95% higher next year than it was last year. Furthermore, Aldermore still offers a very wide margin of safety, with the stock trading on a price to earnings growth (PEG) ratio of just 0.3, which indicates that even if its guidance is downgraded, its shares should still perform well moving forward.

Another Option

Of course, Aldermore is not the only financial services company with a bright future. Standard Life (LSE: SL), for example, is expected to increase its earnings by 65% this year, followed by further growth of 19% next year. And, despite seeing its share price double in the last five years, Standard Life still trades on a PEG ratio of just 0.8 and this shows that its valuation is hugely appealing at the present time.

Furthermore, Standard Life also offers stunning income prospects. As well as yielding 4.1% at the present time, it is expected to increase dividends per share by 7.5% next year and, with it having an excellent track record of dividend growth (they have risen at an annualised rate of 8.2% during the last five years), it looks set to be a super stock for income-seeking investors moving forward.


Clearly, investor sentiment in Santander (LSE: BNC) (NYSE: SAN.US) has been rather weak in recent months, with the global banking giant seeing its share price slump by 26% in the last year. And, while the improving global economy is good news for the highly diversified bank and it does offer upward rerating potential as a result of its price to earnings (P/E) ratio of 11, its growth potential is far lower than that of either Aldermore or Standard Life. As such, those two companies seem to have a more obvious positive catalyst to push their share prices higher.

Certainly, Santander offers greater stability, with its recent placing beefing up its capitalisation ratios and its regional diversity providing a very robust and consistent future outlook. However, when it comes to capital gain prospects, Aldermore and Standard Life seem to be the preferred options.

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Peter Stephens owns shares of Standard Life. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.