Well placed
Shares in challenger bank Shawbrook (LSE: SHAW) have today been given a boost by an upbeat set of results for the 2015 financial year. The lender’s underlying pretax profit increased by 63% to £80m and this was driven largely by a 44% increase in the bank’s loan book. It now stands at £3.4bn and, alongside a fall in the cost:income ratio to 48.3%, Shawbrook appears to be well-placed to benefit from the continued improvement in the UK economy.
Looking ahead, Shawbrook remains confident in its long term outlook and is aiming to pay a modest dividend in 2016. It is expected to increase its bottom line by around 31% in the current financial year and this puts it on a very appealing price to earnings growth (PEG) ratio of 0.3. This indicates that its shares could be set to soar and while there are regulatory risks, as well as the potential for deteriorating economic performance, Shawbrook’s risk/reward ratio seems to be hugely appealing.
Breaking the code
Also reporting today was asset manager Schroders (LSE: SDR). It delivered a rise in pre-tax profit of 14% and enjoyed net inflows of £13bn during the course of 2015. This helped to increase its assets under management to £314bn from £300bn at the end of 2014. With Schroders increasing its pre-tax profit at a double-digit rate, it has been able to deliver an increase in dividends of 12%, which puts it on a yield of 3.2%.
However, the dominant news story regarding Schroders today is the decision of its CEO to step down in order to become the company’s non-executive Chairman. This goes against the UK Corporate Governance Code which states that a CEO should not go on to become chairman of the same company. As such, investor sentiment in Schroders could be hurt by this move in the short run, which makes other stocks more appealing at the present time.
Risk priced in
Meanwhile, Santander (LSE: BNC) continues to record a strong comeback following a dismal period. Its shares have risen by 18% in the last month but still offer exceptional value for money. For example, they trade on a P/E ratio of just 9.7 and with the company’s bottom line expected to grow by 7% next year, now could be a good time to buy a slice of it.
That’s especially the case since Santander conducted a fundraising in 2015, which shored up its financial position. Furthermore, it remains a highly diversified global bank. Certainly, it faces problems in Brazil where the economic outlook remains uncertain, while another key market, the UK, is in the midst of a potentially transformative period which could see it vote to leave the EU. Because of these factors, Santander’s shares are relatively risky, but this appears to be fully reflected in the bank’s valuation, thereby making it a worthwhile purchase for the long term.
