After a trading update on Thursday (9 October), those gains fell to around 172%. Still, it remains well ahead of leading Nasdaq stocks like Palantir, up only 142%.

It raises an intriguing question: is it just a flash in the pan or a contender for bigger things in UK banking?

A closer look

Secure Trust is a retail and commercial banking group organised into segments such as Real Estate Finance, Commercial Finance, Vehicle Finance, and Retail Finance. Founded in 1952 and floated in November 2011, it has steadily built a niche in specialist lending and deposit gathering.

One of the boldest recent moves was its decision in July to halt new vehicle financing. The aim is to slash more than £25m of operating costs by 2030 and boost return on equity (ROE). Since that announcement, the stock has jumped roughly 43.7%. In early September, the bank also appointed a new CEO, signalling a further strategic refresh.

In its H1 2025 results, Secure Trust delivered revenue of £540.6m and earnings of £32.4m, yielding a net margin of 5.99%. At that level, forward valuation multiples look tempting. With a forward price-to-earnings (P/E) ratio of about 5.28 and a price-to-book (P/B) of 0.6, the market might be undervaluing what it sees.

The balance sheet is modest for a bank: debt-to-equity runs around 0.95 but return on invested capital (ROIC) is weakish at 3.08%. It also pays an annual dividend of 42p per share with a payout ratio of 27.5%, offering a yield of 2.89%. 

Risks to consider

While the decision to exit vehicle finance could free capital and reduce volatility, the segment has historically been one of the higher-yielding parts of its loan book. As noted in this week’s trading update, the move has led to higher-than-anticipated impairment charges. Subsequently, it now expects FY underlying profit before tax to fall below market expectations.

With already low ROIC, improving capital efficiency is essential. Another risk lies in regulatory and economic pressures — banking is tightly regulated and sensitive to macro conditions. In tougher economic periods, smaller or lesser-known banks may struggle for visibility or lose ground to larger, more established names.

Changes in compliance rules or capital requirements could impose unexpected costs. Additionally, competitive pressures in lending, deposit pricing, and switching behaviour could squeeze margins further.

Thus, although the undervalued company’s recent rally is impressive, it’s crucial to weigh execution risk, capitalisation risk, and regulatory exposure.

My verdict

In my view, Secure Trust is worth considering for both value and income investors – provided the caveats are acknowledged. The exit from vehicle lending and ongoing cost savings could unlock better returns, and the recent surge doesn’t look completely detached from fundamentals.

That said, the banking sector’s competitive and the regulatory landscape is unforgiving, so any exposure should be balanced and diversified.

All things considered, it’s an interesting example of how a smaller UK bank might outpace larger rivals. For investors interested in emerging finance, Secure Trust Bank is one to keep tabs on in the months ahead.

The post Meet the small-cap UK bank that’s leaving both S&P 500 and FTSE 100 giants in the dust appeared first on The Motley Fool UK.

It may be tempting to jump into this UK recovery stock today, but I’m cautious. With the share price near 1175p, it’s already more than 100% higher than it was last July at the bottom of its coronavirus plunge. So much of the recovery from the crisis could already be in the bag. And prior to the arrival of Covid-19, Secure Trust Bank had been locked in a downtrend since the end of 2015.

I’m wary of this UK recovery stock’s cyclicality

A year ago, I said the company looked like a “fast-growing, new-generation, disruptive competitor in the UK banking sector.” And the valuation had become too rich perhaps because of that perception. So I saw the long downtrend in the share price as a well-deserved unwinding of the valuation premium. And the coronavirus plunge in the markets last year just finished off that move.

Now, the company is valued more like a bank should be. After all, it’s just another banking company, not too dissimilar from others such as Lloyds, Barclays, NatWest and others. And the one overriding feature of bank companies is they operate perhaps the most cyclical businesses in which we can invest. Although, in fairness, prior to the pandemic, annual earnings had been rising fast.

I reckon bank valuations should look modest when the profits of the underlying business are big and growing. We never know when the next down-leg will arrive. So it makes little sense for valuations to rise just because profits are growing each year. And in the period between the financial crisis and the coronavirus crisis we saw the reverse — bank valuations declined as profits grew.

Poised to return to growth

Today’s numbers from Secure Trust Bank show that earnings per share declined by just over 48% in 2020. However, the directors increased the shareholder dividend by 120% to 44p per share. The bank said the first lockdown last year caused the balance sheet to shrink. But growth in the final quarter led to revenue similar to 2019 levels.

The reduction in customer numbers was modest at 3.9%. But total new business lending volumes fell by just over 27%. However, the income statement shows that much of the profit decline occurred because of impairment charges. The company tried to estimate the financial effect of the deterioration of the UK economy “prior to the recovery from the pandemic.”

One positive is the firm’s capital ratios improved in the period. For example, the total capital ratio moved from 15% in 2019 to 16.4%. And, looking ahead, the company reckons its diversified business model and capital strength will help the business withstand further short-term uncertainty. Meanwhile, the directors are “looking forward with confidence” to the business returning to lending growth.

The forward-looking earnings multiple for 2020 is just below 12. And the price-to-book value is around 0.8%. I think that valuation looks full for a bank. So I’m watching from the sidelines even though the company could be poised to return to multi-year, fast-paced earnings growth.

The post This UK recovery stock is shooting higher on today’s news appeared first on The Motley Fool UK.

The FCA has asked all public limited companies (except those on AIM) to delay their preliminary financial statements for “at least two weeks.” However, most firms have opted to send out a trading update instead of their results reports. Secure Trust Bank did that on Tuesday.

One-time high flyer

But before I dig into it, here’s a little background information. The stock looked like a fast-growing, new-generation, disruptive competitor in the UK banking sector for several years, and the share price shot up. But in December 2015, the up-trend reversed and the shares have been generally falling ever since. That happened despite incremental rises in the shareholder dividend throughout the period of the fall.

The recent plunge to 800p today because of the pandemic is merely the latest jolt lower. It looks insignificant compared to its long slide from around 3,060p. On Tuesday in the update, the company suspended the dividend – ouch!

The directors said that, so far, there’s been no change in business performance arising from the coronavirus crisis, apart from “reduced demand” for retail finance and motor finance products. However, they reckon it is “impossible” to quantify the future effects of the pandemic on the business. 

And I think that’s true of many businesses right now, particularly those with cyclical operations such as retailers, housebuilders, commodity firms, banks and others. Normally, after seeing such big plunges in the banking sector, I’d be starting to get interested in banking shares again. But before I do, I need to be certain that a big general economic recession is going to happen. Bank stocks will likely be the first in and the first out of such a slowdown.

Diversification is more important than ever today

But I’m avoiding Secure Trust Bank for the time being for two reasons. Firstly, the uncertainties surrounding the pandemic. And secondly, the long valuation de-rating that has transitioned the firm from its growth rating to a more realistic cyclical one – I want to be sure that move has run its course.

Meanwhile, the narrative in the update drives home how unknowable the future is for individual companies right now. And for that reason, I’d rather diversify widely by drip-feeding money into a low-cost, index tracker fund. And I believe that a FTSE 100 tracker fund would be an ideal vehicle when investing to benefit from a recovery in the markets down the line.

However, it’s not the only tracker I’d consider. I reckon the FTSE 250 index is more growth-oriented than the FTSE 100, and there’s no denying the success of America’s S&P 500 over recent decades. But tracker choices are many, and I’d be inclined to consider them before other investments right now.

The post Why this small-cap convinces me to head for the FTSE 100 today! appeared first on The Motley Fool UK.

The £250m market cap financial services business has an excellent dividend track record. The payout has increased by an average of 6% per annum since 2013, rising from 62p to 83p per share today.

And City analysts don’t expect this trend to come to an end any time soon. They believe the payout will grow by an inflation-busting 4% to 86.2p this year and a further 4.3% in 2020 to just under 90p per share. If the company meets these targets, then the stock will yield an estimated 6.7% by 2020, with the payout covered an estimated 2.3 times by earnings per share. 

Cheap stock

In my opinion, this dividend track record deserves a premium valuation. However, the market seems to be overlooking the opportunity here. At the time of writing, shares in Secure trade at a forward P/E of just 7.6, despite the fact analysts believe the group’s earnings per share will jump 17% this year and a further 19% in 2020. 

However, according to the financial group’s first-half results to the end of June, adjusted earnings per share increased ‘only’ 10.2% year-on-year. Adjusted operating profit (profit before the impact of one-off gains or losses) before tax jumped 13.9%. Statutory profit before tax, which includes one-time gains and losses achieved by the company during the half, increased 19.9% to £18.1m

These results indicate that the company’s growth for the full year might come in below City expectations, but it doesn’t look as if analysts are that far off the mark.

As well as the firm’s double-digit earnings growth, it also has a healthy balance sheet with a common equity tier 1 ratio of 12.8% and a capital ratio of 15.2%.

So, if you are looking to invest in a well-capitalised, undervalued and fast-growing business with a dividend yield of 6%, I highly recommend taking a closer look at Secure. 

Mission complete?

Another financial group with a market-leading dividend yield that I would consider adding to my stocks and shares ISA today is Provident Financial (LSE: PFG).

Provident has had a series of problems over the past few years, both self-inflicted and regulatory. However, it looks as if management has finally managed to put the bulk of these issues to bed.

Earlier this year, Provident reported full-year profits slightly ahead of analysts’ expectations and restored its dividend. The sub-prime lender also said it had resolved most of its regulatory problems. 

Analysts are not forecasting a complete earnings recovery for the firm just yet, but they are forecasting explosive dividend growth for the next two years.

From a token payout of 10p in 2018 (down from nearly 100p per share in 2016) the City has pencilled in a dividend payout of 26p for 2019, rising to 35p for 2020. Only time will tell if the company has what it takes to hit these forecasts, but I think the risk is worth taking.

Based on current earnings projections, the stock is trading at a P/E of just 7.8, falling to 6.5 for 2020. What’s more, analysts’ current dividend outlook suggests investors are in line for a yield of 6.9% for 2019. In my view, this potential reward more than outweighs the risk of investing. 

The post I’d buy these two 6%+ yielders for my Stocks and Shares ISA today appeared first on The Motley Fool UK.

Think small

It isn’t hard to see why most of us focus on big high street banks such as Barclays (LSE: BARC). This is a FTSE 100 giant with a market cap of £26bn that generated total income of more than £21bn last year and posted a profit before tax of £3.49bn. Yet you shouldn’t let that blind you to opportunities elsewhere.

Many investors won’t have given Secure Trust Bank (LSE: STB) a second glance, yet this is a really tempting dividend stock with a forecast yield of 6.7%, underpinned by substantial cover of 2.1. Its share price is up almost 8% today after it published its audited full-year results, which showed a healthy 38.8% increase in group profit before tax to £34.7m in the year to 31 December. 

Going up

Today’s numbers all look good, with operating income up 17.1% to £151.6m, basic earnings per share up 42.2% to 153.2p, and adjusted return on average equity of 13.1%, up from 8.9% in 2017. Today it said its “higher quality book has significantly reduced cost of risk” and it has a healthy common equity tier 1 ratio of 13.8%. This has fallen from last year’s 16.5% but should still support strong growth in the bank’s loan portfolios.

Secure Trust Bank can trace its history back to 1952, although it only listed on the London Stock Exchange in 2016 where it has a current market cap of £254m. Its primary focus is savings and mortgages in the personal market, and business banking.

City analysts anticipate healthy EPS growth of 15% this year and 16% in 2020, yet it trades at an embarrassingly cheap valuation of just 7.4 times earnings. That is partly due to a 21% share price slide over the past year, but the recovery may now have started. By 2020 yield is forecast to hit 7%. Well worth checking out.

Think big too

Barclays has also had a rough year, its share price falling 25%. It has been hit by Brexit uncertainty, stock market volatility and global recession fears, which could hit the banking sector by triggering a sharp increase in customer bad debts.

This might be a bigger concern if Barclays stock was trading at a toppy valuation, but it is yours for just 7.1 times earnings. Its price-to-book value stands at just 0.4, well below the 1 that is seen as fair value. Even better, EPS are forecast to rise 136% this year to 22.15p, giving cover of 2.9, with the dividend expected to be just 7.51p a share.

Maybe buy both

The regulatory authorities have also worked hard to boost banking sector security and Barclays now has a Tier 1 ratio of 17%, for added peace of mind.

Currently, Barclays is on a prospective yield of 4.8%, which is forecast to hit 5.5% in 2020. That’s not quite as generous as Secure Trust Bank, but still tempting as further dividend growth is expected. These two banks are both available at dirt-cheap valuations and sky-high yields. Sometimes big and small can be beautiful at the same time.

The post Why I’d buy the undervalued Barclays share price and this 6% dividend stock appeared first on The Motley Fool UK.

Secure income 

My first pick is financial services group Secure Trust Bank (LSE: STB). At the time of writing, shares in this enterprise are trading at a forward P/E of just 8 and support a dividend yield of 6.6%. 

Usually, when a bank’s valuation falls to this level, it’s a sign the market believes something is going wrong under the bonnet. However in this case, I can’t see anything to be concerned about. Secure Trust has a Tier 1 equity capital ratio of 13.6%… and its earnings are exploding. 

During the first half of 2018, the bank’s earnings per share (EPS) jumped 36.6% and analysts are forecasting growth of 45% for the full year, which should leave the dividend covered 1.9 times by EPS.

It looks to me as if the market has oversold this bank, and the stock could be an excellent buy for value-seeking investors after sliding nearly 40% over the past 12 months. 

Slow and steady 

My next embarrassingly cheap income play is Investec (LSE: INVP). Investec tends to fly under the radar of most investors because the company is, well, boring. Indeed, with EPS growth averaging 9% over the past nine years, Investec isn’t going to win any awards any time soon. 

Still, what Investec lacks in growth it more than makes up for in reliability. As mentioned above, the company has churned out consistent earnings growth of 9% per annum for the past six years, but despite this, the share price has hardly budged. Even though EPS have expanded from 30p in 2013 to 50p for 2018, the shares are around 10% lower today than they were at the same time in 2013 (~500p). The group’s dividend has also increased 44% over this period, and today the stock yields 5.4%. 

At the time of writing, shares in Investec trade at a forward P/E of just 8.5, which is, quite frankly, an embarrassingly low multiple for a business that has seen EPS expand 67% over since 2013. It could be worth buying the shares today before the rest of the market catches on to Investec’s untapped potential. 

Steel stock 

My last cheap income stock is Evraz (LSE: EVR). As a cyclical steel business, it comes with more risk than both Secure Trust and Investec. However, right now shares in this business are so cheap, there’s a wide margin of safety for investors if anything goes wrong.

Evraz is trading at a forward P/E of 7.3 and a discount of around 20% to the rest of the metals and mining sector on an EV/EBITDA basis. These figures are already based on the City’s expectation that EPS will slide 34% in 2019 to $1.11 from 2018’s blow-out number of $1.68.

Considering that shares in Evraz are trading at a discount of 20% to the rest of its sector, earnings could fall a further 20% before it started to look fairly valued.

On top of this margin of safety, shares in the steel producer support a dividend yield of 9.1% (based on the City’s target for 2019). The payout is covered 1.5 times by EPS, so it looks reasonably secure for the time being. 

The post 3 embarrassingly cheap dividend stocks I’d buy appeared first on The Motley Fool UK.

However, after watching the share price fall more than 40% over the past three months, I reckon now could be the time to get involved. 

Cash cow

The first thing that you notice when you look at Jackpot’s balance sheet is the company’s debt. At the end of 2017, the firm had an adjusted net debt balance of £387m, and an adjusted leverage ratio of 3.6 times. But this balance is falling rapidly. The group’s results for the nine months ended 30 September, which were published today, show the adjusted net leverage ratio falling to around three times. Meanwhile, adjusted net income increased 36% year-on-year, partly thanks to a 36% decrease in interest expenses. 

Jackpot’s hidden weapon is its free cash flow. For the year to the end of September, the group generated operating cash flows of £33m, most of which was used to pay down debt. 

In my view, this robust cash generation indicates that Jackpot is set to become one of the market’s top income stocks when debt is reduced to an acceptable level. Management is targeting a leverage ratio of below 2.5x earnings before interest, tax, depreciation, and amortisation, at which point “the Board can consider options to return cash to shareholders.“

As group free cash flow was £31m for the year to the end of September, I think cash returns could exceed £30m per annum, which gives a yield of more than 26% on the current market value. 

That said, Jackpot’s outlook isn’t wholly speed-bump free. In today’s release, management acknowledges that headwinds, including the expiration of a non-compete arrangement and additional gambling regulations, will hurt revenue growth over the next 12 months. So, I’m not willing to bet the house just yet. Nevertheless, with a potential dividend yield of more than 20% on the horizon, it looks to me as if there’s a wide margin of safety in the figures for investors buying today. 

Slow and steady 

With so much debt on the balance sheet, some investors might not be comfortable owning Jackpot. If you fall into this bracket, I think you should check out Secure Trust Bank (LSE: STB). 

Secure Trust has grown rapidly over the past five years, expanding revenues from £57m to £131m for 2017. Analysts expect the business to report further growth in 2018, with revenues set to rise to £154m, and then £181m in 2019. Off the back of this revenue growth, analysts think the company will earn 187p per share in 2019.

Historically, Secure Trust has distributed the majority of its earnings to investors via dividends. Analysts expect this to change over the next few years, however, as earnings growth accelerates. Payout cover is predicted to rise from 1.4 times in 2017, to 2.1 by 2019. 

I think these numbers could be conservative, considering Secure Trust’s history of distributing close to 100% of earnings. And analysts’ yield projection of 6.1% for 2019 understates Secure Trust’s true potential as an income play. Even if I’m wrong, a yield of more than 6% is nothing to be sniffed at. What’s more, today the stock is trading at a forward P/E of just 9.5. What’s not to like? 

The post This small-cap could yield more than 20%! Is time running out to buy? appeared first on The Motley Fool UK.

Building a second income stream from high-quality dividend stocks is a fantastic way to create wealth over the long term. And the best part is, this strategy requires little effort on your part. Here are two companies that I believe are perfect candidates to help you accomplish this goal. 

Slow and steady 

Pub group Fuller Smith & Turner (LSE: FSTA) might not be the first income stock on investors’ radars, but that does not mean you should overlook this income champion. 

Over the past six years, the group’s dividend per share has grown at an average annual rate of 8.2%. Today the shares yield 2.1%, compared to the market average of 3.7% and trade at a forward P/E of 15. 

You might be wondering why I believe Fuller’s is a great income stock with a yield below the market average. The reason is that payout is covered three times by earnings per share, and the company, which is one of the largest pub and hotel groups in the UK, has a strong balance sheet and bright growth outlook. 

Today’s full-year numbers from the group showcase its strengths. For the 52 weeks ended 31 March, revenue jumped 5%, “above the industry average” for managed pubs and hotels. Adjusted earnings per share increased 4%. 

Off the back of these numbers, management has increased the full-year dividend by 4% to 19.6p per share. 

These are tough times for the pub industry with costs rising thanks to Brexit, rising business rates, a higher minimum wage and apprenticeship levy, factors that are causing strain across the industry. However, it seems as if Fuller’s has been able to offset these issues. “During the year, we have had to absorb a number of cost pressures” today’s release noted. “Despite this, we have continued to grow profits and the impact has been mitigated to a margin dilution of 10 basis points” it continued. 

Fuller’s efforts to mitigate these pressures are a testament to the group’s structure, and efforts by management to cut waste. Reinvestment in operations has been essential to staying ahead of the rest of the sector. The company spent £28.2m on refurbishment, new pub openings, automated equipment for its Chiswick Brewery and IT investment throughout the year. Capital spending was easily covered by £51m of cash generated from operations. Dividends only cost the firm £11m, so there’s plenty of headroom for further dividend hikes. 

Considering all of the above, I believe Fuller’s can help you build a second income from shares despite its relatively low yield. The dividend is well funded, and the company is spending millions investing in itself to drive growth. 

Secure income 

Secure Trust Bank (LSE: STB) is another stock I believe can help you build a second income stream. At the time of writing, this stock supports a dividend yield of 4.4%, above the market and the banking sector average of 3.5%. 

In my view, over the past five years, Secure Trust has quickly established itself as a high-quality income stock. For 2018 the firm is expected to distribute 83.2p per share, up 46% from 2012’s payout of 57p giving an average annual growth rate of 6.7%.

And the sustainability of this distribution is set to increase substantially over the next two years if City expectations are to be believed. Analysts have pencilled in earnings per share growth of 38% for 2018 followed by growth of 33% for 2019. The dividend is expected to grow at a more moderate pace — 5.3% for 2018 and 7% for 2019 — the result being that dividend cover will rise from just 1.1 in 2016 to 2.2 by 2019. 

With this being the case, Secure Trust’s investors are not only set to receive a market-beating dividend yield, but they should also benefit from capital growth as well. At present the stock is trading at a forward P/E of 13.2, falling to just 9.9 by 2019 based on current growth expectations.

The post You could build a second income stream with these champion dividend growth stocks appeared first on The Motley Fool UK.

Secure option

Rather than investing in this wounded beast, you might prefer to invest in something younger, sleeker and with a more rewarding dividend. Challenger bank Secure Trust Bank (LSE: STB) has just issued its audited final results for the year to 31 December 2017, and investors like what they see. Its stock is up 3.77% at time of writing after it announced increased profits in a year of strategic repositioning.

The West Midlands-based bank was founded in 1954 but only listed on the stock market in October 2016. It takes savings and lends money to individuals and to businesses but remains a minnow compared to blue-chip behemoth Barclays, with a market cap of £377m against £35bn.

Making money

Secure Trust Bank has none of Barclays’ manifold legacy problems but it is nonetheless in recovery mode, with its share price halving over the last couple of years. That is despite reporting “excellent progress” in 2016 and record profits last year.

Today, it announced group profit before tax on continuing operations of £25m, a 28.9% increase on 2016, as it develops its SME, retail finance and motor lending activities, and launches a mortgages division and new online deposit platform. “The group finished 2017 with strong capital and funding positions and its largest ever pipeline of new business in its chosen markets,” management said.

Time to trust

Secure Trust Bank currently trades at a bargain forward valuation of 9.5 times earnings and offers investors a generous forecast yield of 5.2%, covered twice. Better still, earnings per share (EPS) are forecast to grow 49% this year, and another 32% in 2019. These numbers look highly promising to me.

My fellow Fool Kevin Godbold reckons that Barclays’ performance is too patchy to buy into now, but I believe the bank is due a recovery spurt sooner or later, and it could pay to get in at today’s lowly forecast valuation of just 10.4 times earnings. The outlook should brighten if it can keep its nose clean and keep further fines and penalties at bay, with EPS expected to rise 15% in 2019.

Rising yield

Markets are baffled by stealth investor Edward Bramson’s intentions towards Barclays after he revealed a 5.2% stake in the company on Monday, although his partner Aviva said he will not be pushing for seismic changes such as selling off the investment bank or Barclaycard. Pimco is also building up its stake in Barclays. Maybe you should too.

The ride may be bumpy but that is all the more argument for investing when Barclays is down, rather than up. It still trades 22% lower than five years ago but this makes for a tempting entry point. The stock yields just 1.5% today, but that is forecast to hit 3.5% over the next year, then 3.8% the year after. One day, it might even catch up with Secure Trust Bank.

The post This challenger bank’s 5% dividend yield easily beats Barclays plc appeared first on The Motley Fool UK.

Throughout the banking crisis he’d say things to me like “I don’t understand what it’s all about, but the slimy bankers will come out smelling like roses as they always do,” and he went on taking his annual dividend as scrip.

That buy and forget approach has served him well, with HSBC shares up around 1,500% in the time he’s held them. And reinvesting those dividends, which in recent years have been averaging around 5%, has made a huge difference.

Forecasts suggest yields of around 5% for the next couple of years, and that’s after the bank has almost finished returning a cool $2bn to investors in the form of share buybacks.

Attractive valuation

At a share price of 790p, we’re looking at P/E multiples of around 14, which is close to the long-term FTSE 100 average.

For me HSBC’s valuation is about as good as they come. It’s not stupidly cheap, or overheated in the hope of growth, with the risks those entail. It’s just a very good company at a good price — the kind of thing that Warren Buffett exhorts us to seek.

Liquidity looks fine now too, after HSBC’s third-quarter update revealed a strong CET1 ratio of 14.6% at 30 September. And under the worst of the Bank of England’s stress tests, reported in November, that would have dropped to a still comfortable 8.9%.

In short, HSBC is a cash cow.

An even better one?

But over the medium term, I think the so-called challenger banks could do even better, partly because sentiment seems weaker towards smaller financial companies right now.

One of those is Secure Trust Bank (LSE: STB), whose shares do seem to be out of favour at the moment — they’re down 47% since their peak in November 2015, to 1,798p.

Thursday’s full-year trading update was essentially “in line with market expectations,” which suggests a flat year for earnings for 2017. But what excites me about the outlook for Secure Trust is forecasts for EPS growth of 27% this year followed by 33% in 2019. 

And the latest update gives me confidence that the bank’s risk is falling. Secure Trust has “continued to reposition its lending portfolios away from higher-risk consumer lending during the final quarter of 2017,” and has sold what was left of its unsecured personal loan book.

Earnings growth

If forecasts come good, the company’s P/E would drop to under eight by 2019, with PEG ratios for this year and next of 0.4 and 0.2 respectively. A PEG of less than 0.7 is often seen as very attractive by growth investors, and Secure Trust’s relatively small portion of the very large banking market is what makes such potential growth possible.

Dividends are strong and progressive, with a yield of 4.4% expected for the year just ended, and predicted to grow to 5.2% by 2019. And that dividend would be significantly better covered by earnings than HSBC’s, with cover of 2.4 times compared to HSBC’s 1.4.

The dividend is progressive too, and I see significant scope for uplifts in the coming years — buying now could lock in some strongly-rising effective future yields.

And as Secure Trust is 100% UK-focused, I really don’t see much in the way of the Brexit risk that’s holding the banking sector back.

The post A challenger bank that could beat HSBC Holdings plc in 2018 appeared first on The Motley Fool UK.