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Are Banco Santander SA, Old Mutual plc And OneSavings Bank PLC Set To Post Stellar Returns?

The financial services sector continues to be relatively unloved and offers significant capital gain potential. Certainly, a number of its constituents have disappointed in recent years — Santander (LSE: BNC), for example, has seen its share price fall 31% since the turn of the year.

Looking ahead, though, Santander could prove to be an excellent value play, with the company’s shares now trading on a price to book value (P/B) ratio of just 0.8. This indicates that there is significant upward re-rating potential, with Santander’s global diversity having the potential to be a catalyst to stimulate investor sentiment.

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Resilient

For example, the Brazilian economy has been enduring a challenging period of late and, as Santander’s previously largest market, its disappointing performance has hurt the bank’s bottom line. However, with the UK now representing a similar proportion of the bank’s earnings, Santander has been able to offset the challenges in Brazil with the strong performance of the UK economy and, as such, is forecast to post a rise in its bottom line of 4% in the current year and 6% next year.

Certainly, neither of these figures is particularly strong, but they provide evidence that Santander is a relatively resilient stock that could be worth much more than its current price level. Furthermore, it offers a degree of resilience should specific regions within the global economy suffer from negative growth. And, with the bank yielding 3.7%, despite only paying out 39% of profit as a dividend, it appears to be a very appealing long term income stock, too.

Sustainable

Similarly, Old Mutual (LSE: OML) seems to offer excellent value for money at the present time. As today’s quarterly update shows, the company is making strong progress and was able to post a rise in gross sales of 31% in the third quarter of the year. A key reason for this was the excellent performance of its wealth management business, which delivered a 45% rise in sales as a result of increasing pension sales.

Looking ahead, Old Mutual is confident of delivering sustainable growth and, in the current year, is forecast to increase its net profit by 11%, followed by a further 5% gain next year. Both of these figures are highly encouraging and, realistically, should merit a higher price to earnings (P/E) ratio than is currently the case. In fact, Old Mutual has a P/E ratio of just 10.9, which indicates considerable upward re-rating potential. Furthermore, with the company yielding 4.3% and being forecast to increase dividends per share by 6.7% next year, it has great appeal as an income stock.

Efficient

Meanwhile, OneSavings Bank (LSE: OSB) also reported upbeat results today, with the specialist lender reporting a rise in net loans and advances of £986m in the first three quarters of its current year. This takes them to £4.9bn in total, with the company also being highly efficient as evidenced by a cost:income ratio of just 26%.

Looking ahead, OneSavings Bank is expected to increase its earnings by 39% in the current year, followed by growth of a further 10% next year. This puts it on a price to earnings growth (PEG) ratio of just 1.1, which indicates that its shares could bet set to continue the 81% gains made since the start of the year. Although OneSavings Bank yields just 2.4%, its dividends represent just 25% of profit and this indicates that shareholder payouts could grow at a rapid rate over the medium to long term.

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Peter Stephens owns shares of Old Mutual. 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.

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