Arbuthnot Banking Group PLC share price, company news, analysis and interviews
Arbuthnot Banking Group PLC (LON:ARBB), trading as Arbuthnot Latham, provides private and commercial banking products and services in the United Kingdom.
The company operates through nine segments: Banking, Wealth Management, Mortgage Portfolios, Renaissance Asset Finance, Arbuthnot Commercial Asset Based Lending, Arbuthnot Specialist Finance Limited, Asset Alliance Group, All Other Divisions, and Group Centre. It offers a range of private and commercial banking services including current and deposit accounts, loans, overdrafts, guarantees, and foreign exchange.
Additionally, it provides financial planning, investment and asset management, asset finance funding, property finance, asset-based lending, deposits, and specialist finance. The company also offers commercial vehicle finance, as well as property investment, management, and development services.
Founded in 1833, Arbuthnot Banking Group PLC is based in London, United Kingdom.
PRIVATE BANKING
Together Arbuthnot Banking Group can help you create the life you want. Whatever your goals and ambitions for the future, their Private Banking teams focus their efforts on shaping your world now and in the years to come.
COMMERCIAL BANKING
In an increasingly complicated world, Arbuithnot Banking Group’s Commercial Banking services are refreshingly straightforward.
WEALTH MANAGEMENT
Arbuthnot Banking Group’s qualified advisers will take the time to understand what’s important to you and what you’re looking to achieve. Their Wealth Management offering includes both wealth planning and investment management.
Dividend stocks provide opportunities for shareholders to generate a passive income stream through dividend payments. In this article, we highlight five UK shares listed on the FTSE 250 and AIM segments of the LSE that have proven very reliable in delivering regular attractive high dividend yields. The PLCs are Duke Capital, Arbuthnot Banking Group, Diversified Energy Company, Real Estate Credit Investments and Fidelity China Special Situations.
Duke Capital Limited (LON:DUKE) is an AIM-listed provider of hybrid capital solutions for small and medium-sized enterprises (SME) business owners in the United Kingdom, Europe and North America, combining the features of both equity and debt.
In Duke’s recent FY ’24 results, it’s high-yielding dividend stood out. It paid investors 2.8 pence per share, which equates to an impressive 8.6% yield with the share price at 32.5 GBX on 2 April 2024. According to Hardman’s research, this was more than covered by free cashflow of 4.3 p/sh, recuring cashflow of 3.5 p/sh and adjusted EPS of 4.85p (up 55%).
Real Estate Credit Investments Limited (LON:RECI), a stable quarterly paying high dividend UK stock and specialist investor in the United Kingdom and Western European real estate markets with a focus on fundamental credit and value.
RECI paid four interim dividends of 3.0 pence per Ordinary Share (i.e. 12 pence per share in total) for the year ended 31 March 2024. This equates to a high-income yield of 10.4% at 31 March 2024.
Fidelity China Special Situations PLC (LON:FCSS), the UK’s largest China Investment Trust, capitalises on Fidelity’s extensive, locally-based analyst team to find attractive opportunities in a market too big to ignore.
FCSS has increased its dividend in every year since inception with the most recent annual dividend offering a historic yield of 3%. The trust was awarded Kepler’s Income & Growth rating for 2024.
Arbuthnot Banking Group PLC (LON:ARBB), trading as Arbuthnot Latham, provides private and commercial banking products and services in the United Kingdom. Arbuthnot Banking Group paid a total dividend of 46.00p (equating to a yield of 4.6%) for the financial year end 31/12/23. It has a current yield of 5.05% that is well covered by earnings.
Diversified Energy Company Plc (LON:DEC) is a consolidator of mature natural gas producing assets in North America. It’s at the forefront of U.S. natural gas producers in its commitment to ESG goals and stewardship of its assets.
Hargreaves Lansdown states DEC’s dividend yield is over 26% based on its last reported annual dividend and its current buy price of 852.50 GBX. Diversified Energy has already declared two dividends of 29.00¢ each for Q1 and Q2 2024 payable in September and December 2024.
Arbuthnot Banking Group Plc (LON:ARBB) has announced a half yearly profit before tax of £20.8m.
Arbuthnot Banking Group PLC is the holding company for Arbuthnot Latham & Co., Limited.
FINANCIAL HIGHLIGHTS
●
Profit before tax of £20.8m for the six months to 30 June 2024 (30 June 2023: £26.4m), as expected, as existing fixed rate deposits have continued to reprice onto higher terms as they are renewed.
●
Underlying profit before tax of £20.8m (30 June 2023: £29.3m)*.
●
Earnings per share of 94.6p (30 June 2023: 129.4p; 31 December 2023: 222.8p).
●
CET1 capital ratio of 11.6% (30 June 2023: 12.2%; 31 December 2023: 13.0%) and total capital ratio of 13.6% (30 June 2023: 14.5%; 31 December 2023: 15.2%).
●
Interim dividend of 20p per share previously announced and already paid in June (30 June 2023: 19p per share).
●
Special dividend of 20p per share previously announced and already paid in June.
●
Net assets per share at 30 June 2024 of £15.75 (30 June 2023: £14.70; 31 December 2023: £15.47).
OPERATIONAL HIGHLIGHTS
●
Customer loans (including leased assets) increased by 3% to £2.40bn (30 June 2023: £2.25bn; 31 December 2023: £2.33bn) increased by 3% in the first half of the year, representing a 7% increase year on year.
●
Specialist Lending Divisions’ loan balances grew by 12% in the first half of the year, and 29% year on year to £861.1m (30 June 2023: £669.0m; 31 December 2023: £768.5m).
●
Customer deposits of £3.9bn (30 June 2023: £3.3bn; 31 December 2023: £3.8bn), a 3% increase since the year end and a 19% increase year on year.
●
Lower cost Commercial transactional deposits saw annualised growth of 19% to £1.14bn (30 June 2023: £0.96bn; 31 December 2023: £1.05bn), as the Group’s strategy to grow these balances gathered momentum.
●
Funds under management and administration of £1.96bn at 30 June 2024 (30 June 2023: £1.38bn; 31 December 2023: £1.71bn), a 15% increase against 31 December 2023 and an increase of 43% year on year, with net inflows showing a four-fold increase on the first six months of 2023.
Commenting on the results, Sir Henry Angest, Chairman and Chief Executive of Arbuthnot Banking Group, said: “The Group made good progress in the first half of the year, again delivering strong profits in an evolving interest rate environment.
The balance sheet evolution and growth achieved in the period demonstrates the ongoing success of our ‘Future State 2’ strategic plan, with its focus on diversifying the loan book whilst continuing to enhance our value proposition to relationship clients.
While an expected fall in interest rates in the second half will have a short-term impact on profit growth, the Group is well positioned to take advantage of the market opportunities we anticipate over the near, medium and long term.”
Chairman’s Statement
I am pleased to report that the Group has recorded a profit before tax for the first six months of the year of £20.8m, compared to £26.4m in the same period last year.
The reported profit is lower, as expected, due to the previously explained time lag between rises in the Bank of England base rate and the ageing of the existing fixed rate deposits. It takes 12 months for the cost of our deposits to rise to their resting rate.
This has been the case during the first half of 2024 with the average cost of deposits being 3.19% compared to 1.92% in the same period in the prior year. This increase when applied to customer deposit balances in excess of £3bn, has increased the cost to the Group by £35.2m, being the main reason for the reduction in profits in the first half of 2024. This trend will continue into the second half.
As previously set out in the strategic plan “Future State 2”, the Group is focussed on diversifying the loan books by increasing the proportion represented by the specialist lending divisions.
This continued with success in the first half, with the specialist divisions reaching £861.1m of lending balances, which is growth of 12% during 2024 and 29% in the last 12 months. This now represents 36% of the total lending portfolio compared to 30% in June 2023.
The success the Bank had in growing relationship deposits continued into 2024. As expected, we saw the usual seasonal outflow of balances as tax payments were made by clients. We also encouraged non-relationship, expensive fixed term deposits to mature away from the Bank, without competing on price to retain these balances. Finally, we marketed an investment opportunity for our Private Banking clients to earn higher returns through a gilt investment product. In combination, the impact of these three factors resulted in a reduction in deposits of £235m.
However, despite this, total deposit balances have increased by £103.6m or by 3% since the start of the year and by 19% since June 2023. As part of the strategy to grow our deposit base, we have been focussing on the underserved SME current account market, where we have found that private bank style client service resonates well with the finance professionals of our commercial clients. So much so that the transactional SME deposits grew by £121m in the first half of 2024, an increase of 9% and nearly 20% from the prior year.
I would also like to draw attention to the performance of our Wealth Management division. Many wealth managers across the sector are struggling to grow organically, but we continue to make great strides, growing our Funds Under Management and Administration in the first half by £256m, an increase of 15% and 43% since the prior year.
As previously indicated, I was pleased that we were able to complete the renewal of our subordinated loan with P Capital Partners at the beginning of June. This will ensure that the diversity and strength of our regulatory capital base remains robust. We are delighted that our relationship with P Capital Partners has been extended and value that they share the vision we have for the prospects of the Group.
Reflecting on the success that the Group has enjoyed over the past 18 to 24 months, the Board of directors considered that our shareholders should be rewarded for their loyalty by declaring a further special dividend of 20p per share, which was paid on 20 June.
At the same time, the Board announced the interim dividend for the year, which was also 20p per share, an increase of 1p per share over the prior year interim dividend. This was paid on the same day as the special dividend.
On 2 July we announced Richard Gabbertas was joining the Board of ABG, having already served for over three and a half years on the Board of our bank, Arbuthnot Latham, where he was previously the Chair of the audit committee and had recently become the Chair of the risk committee. I am delighted to welcome him to our Board and wish him well for his future tenure.
Banking
Net client growth across Private and Commercial Banking has increased year on year following the investment into new segments over the last 12 to 18 months. Total deposits grew 3% from the year end and 19% over the previous twelve months to finish the period at £3.9bn.
Private Banking deposits seasonally reduced in the first quarter due to client tax payments. However, client growth and acquisition has led to balances being largely replenished over the second quarter to finish the half year at £0.95bn.
The strategy continues to focus on low-cost relationship deposits. Commercial Banking deposits increased across a wide spread of target segments with growth of 30% over a twelve-month period. Conversely, non-relationship balances have reduced as these were more expensive to maintain.
The Banking loan book finished the half year with loans of £1.54bn, flat compared to the previous twelve months and year end. Lower than expected repayments over and above contractual repayments, coupled with on-plan gross lending, has led to higher lending balances generating higher interest income throughout the period, which has only been partially offset by a higher interest expense.
Loan book quality remains strong given the macroeconomic environment. The Bank’s cautious underwriting approach with low LTVs is resulting in new defaults being exited with little or no loss.
Wealth Management
Funds Under Management and Administration at the end of June were £1.96bn, up 15% from the start of the year and growth of 43% year on year (30 June 2023: £1.38bn).
Year to date gross inflows were £247m compared to £116m over the same period last year, of which a third were from existing clients and two thirds from new clients. Net flows for the period were £170m, representing a four-fold increase versus the same period in 2023. Additionally, the Direct Gilt Service, launched in February 2024, has raised £82m across twenty-one portfolios.
Arbuthnot Commercial Asset Based Lending (ACABL)
ACABL reported a profit of £4.4m (30 June 2023: £4.0m) and finished the first half with a loan book of £263.8m, compared to £241.1m for the same period in the prior year and £239.8m at the year end.
ACABL has continued to support existing clients with renewals, additional facilities and acquisitions, particularly where clients have a buy and build strategy. However, macro-economic inflationary pressures, and the higher interest rate environment along with ongoing supply chain challenges have resulted in a reduction in the number of event-driven transactions and fewer Private Equity backed buy-outs in early 2024. However, at the half the year, the business is seeing signs of improving market conditions with falling inflation and the prospect of lower interest rates on the horizon.
The business continues to observe a higher number of watch cases compared to prior years. However, the loss rate remains very low due to the high quality, liquid assets, as well as close monitoring of the collateral.
Renaissance Asset Finance (RAF)
RAF reported a profit of £2.2m (30 June 2023: £0.7m) and finished the first half with a loan book of £234.3m, equating to annual growth of 49% when compared to £156.7m for the same period in the prior year and 18% up from the year end (31 December 2023: £198.8m). In the month of June the business generated profit before tax in excess of £0.5m for the first time.
The business continued to broaden its offerings in the wholesale funding sector whilst developing a specialist finance portfolio, securing new and additional funding through block discounting facilities and revolving credit facilities to businesses with successful track records, with Block Discounting balances of £30.9m following the launch of the business in late 2021.
Asset Alliance Group (AAG)
AAG reported a profit before tax of £25k (30 June 2023: £2.5m loss). Whilst the business has only just achieved break even, this is partly caused by the stage of development of the business, whereby since acquisition we have more than doubled the size of the fleet in a short period of time. The benefit of this will mainly be felt as the portfolio matures.
As at 30 June 2024 the business had assets available for lease and finance leases totalling £363.1m (30 June 2023: £258.8m) with growth of 11% since the year end and 40% over the previous 12 months.
Despite the current economic headwinds, AAG has generated a strong flow of originations in the 6 months to 30 June 2024. Yields, whilst under pressure in certain areas, have improved in others, with an average yield on new business of 8.2% for the first half of the year.
All new assets delivered for the new Bus Rental Division are being fully utilised with current yields in excess of 10%. The Commercial Vehicle sector is experiencing high levels of customer uncertainty coupled with significant pricing pressure from competitors; however, larger, stronger fleets confirm to be targetting annual fleet replacements.
Trading for used truck sales remains challenging. Margins have tended to be maintained, although demand and stock turnover has yet to fully recover from the post-Covid lull.
Operations
The Bank has continued to see good momentum in pursuing its strategy for client growth in its target markets. Net new client growth was 3% compared to the year end with a trend towards larger and more complex commercial clients.
Total number of card app users is 25% higher than the same period for the previous year and the total number of transactions through Apple Pay and Google Pay increased by 131% year on year.
The Bank continues to develop its digital roadmap to improve the customer experience and organisational efficiency, including progress in upgrading and transforming the Bank’s online and mobile banking offering.
Outlook
We now have a new Labour government, and we await to hear how its plans will be implemented. While the outlook for this remains uncertain, we believe there will be opportunities that we remain well positioned to benefit from.
It is expected that interest rates will start to fall from their current highs, and as disclosed, this will inevitably have a short-term impact on our profits. However, we remain focussed on implementing our growth strategy and we are fortunate to have more than sufficient market opportunities to continue to deliver on this.
Arbuthnot Banking Group’s COO Andrew Salmon and Finance Director James Cobb discuss their six-month financial results, growth strategies, and future aspirations.
Arbuthnot Banking Group (LON:ARBB) CEO Andrew Salmon and CFO James Cobb discuss financial results, strategic developments, and future outlook in this insightful interview.
Discover insights into Arbuthnot Banking Group’s recent success and strategic positioning for growth in a rising rate environment, from analyst Mark Thomas of Hardman & Co.
Arbuthnot Banking Group plc’s (LON:ARBB) COO Andrew Salmon and Group Finance Director James Cobb discuss interim results, strategic plans, and dividends in an exclusive DirectorsTalk interview.
Discover how Arbuthnot Banking Group (LON:ARBB) is optimizing its franchise value amid evolving market conditions, as discussed by Hardman & Co’s Analyst Mark Thomas.
Arbuthnot Banking Group’s (LON:ARBB) CEO Andrew Salmon and CFO James Cobb discuss their core businesses, profit surge, and future growth in an exclusive interview with DirectorsTalk.
Arbuthnot Banking Group plc (LON:ARBB) has released its interim results for the first half of FY24, demonstrating a resilient performance that aligns with expectations, despite a challenging economic environment. Shore Capital, the broker covering the company, has highlighted ARBB’s robust results, noting its ability to navigate through interest rate headwinds and ongoing market pressures.
One of the standout features of the report is ARBB’s cautious but strategic growth, particularly in its higher-yielding specialist divisions. Customer loans have grown by 3% year-to-date, and an impressive 12% increase has been observed in the specialist divisions. This strategic shift is allowing the bank to tap into new opportunities while maintaining its strong position in a competitive market.
Though profitability has slightly decreased year-on-year, with a pre-tax profit of £20.8 million compared to £26.4 million the previous year, these figures remain on track for the forecasted £36.8 million for FY24. Vivek Raja, analyst at Shore Capital, notes that the compression in net interest margins (NIM) from 6.1% to 5.2% was expected, given the rising deposit costs. However, ARBB has effectively mitigated these challenges by focusing on lower-cost commercial transactional deposits, which saw a remarkable 9% increase.
In terms of wealth management, ARBB has shown exceptional growth, defying wider industry trends. With assets under management (AuM) increasing by 15% year-to-date and net flows annualising at 16%, the wealth division has proven to be a strong performer. This is a testament to the bank’s ability to adapt and innovate in a rapidly evolving financial landscape.
The company also paid a healthy interim dividend of 20p, with a special dividend of an additional 20p per share, reinforcing its commitment to delivering shareholder value. Shore Capital views ARBB’s valuation as “undemanding,” especially with its sustainable return on tangible equity (RoTE) in the low-to-mid teens, projecting 12% for FY24.
Gary Greenwood, another analyst at Shore Capital, points out that the outlook for ARBB remains cautiously positive. While there are potential short-term impacts from future interest rate cuts, ARBB’s growth strategy, coupled with its focus on relationship banking, positions it well to seize significant market opportunities in the long term.
On a Final Note
Arbuthnot Banking Group continues to demonstrate its strength and adaptability, even in a tightening financial environment. With steady loan growth, a strong wealth management division, and a commitment to shareholder returns, ARBB remains a promising player in the sector. As the bank continues to navigate interest rate fluctuations and market challenges, its strategic focus on higher-yielding divisions and relationship banking will be key drivers of its future success.
Arbuthnot Banking Group plc (LON:ARBB) 1H’24 results showed the group’s continued evolution to optimise its franchise value. 2023 saw the peak benefits from ABG’s relationship deposit franchise in the recent rising rate environment. Margins could be widened while still giving customers competitive products. 1H’24 profits fell £6m (-21% on 1H’23), as low-cost fixed deposits matured and rolled into higher-rate products. The effect was mitigated by i) strong growth in specialist lending, the result of a multi-year strategy, ii) growth in lower-cost SME deposits (a new focus), and iii) the extended duration, and increased volume, of high-quality debt securities instead of placings at the Bank of England (BoE).
Impact of rate outlook: A lower interest rate environment will put pressure on some income lines (e.g. taking deposits and placing them with the BoE), but ABG has been taking proactive steps to cushion these effects. A higher-for-longer rate environment will give ABG more time to inflate these cushions.
Some key 1H’24 numbers: PBT £20.8m (1H’23: £26.4m), underlying PBT £20.8m (£29.3m). EPS 94.6p (129.4p). CET1 capital ratio 11.6% (30 June 2023: 12.2%). Interim dividend 20p (19p), special dividend 20p (nil). NAV p/sh. £15.75 (£14.70). Both loans and deposits grew by 3% and AUM by 15% in 1H’24.
Valuation: Our multiple approaches see a broad range of valuations: £13.85 DDM, £22.69 SOTP and £23.35 GGM. The average is £19.98, nearly double the current share price. Trading at 62% of NAV is anomalous, in our view, with above the cost of capital returns (target mid-teens pre-tax ROCE) and given Arbuthnot Banking Group’s growth potential.
Risks: Margins may have peaked now, with the trend, and level, of interest rates a key driver to earnings. A higher-for-longer outlook would assist earnings. Credit is a risk, but ABG is conservative in lending, taking good security; so, its loss, given default, is low. Other risks: reputation, regulation and compliance.
Investment summary: Arbuthnot Banking Group offers strong-franchise and continuing-business (normalised) profit growth. Its balance sheet strength gives it a number of wide-ranging options to develop organic and inorganic opportunities. The latter are likely to increase in uncertain times. Management has been innovative, but also very conservative, in managing risk. Having a profitable, well-funded, well-capitalised and strongly growing bank priced below book value is an anomaly, in our view.
In our view, the key takeaway from the recent 3Q trading statement is how Arbuthnot Banking Group plc (LON:ARBB) is progressing strategically towards its “Future State 2” plan. In particular, we note i) specialist SME finance divisions generating the ambitious balance sheet growth in the plan, ii) optimising the core relationship banking franchise, which, in this period, saw 7% deposit growth ‒ given the level of base rates, this is a profitable product for a relationship bank, and iii) continued investment, which, at times, requires a step change in cost rather than a gentle evolution. To meet expected multi-year demand, ABG is increasing its central London HQ office space by 45% at an annual increase in cost of ca.£5m (with further dual running costs until October 2024 as it is refitted).
Credit: “The book continues to perform robustly despite the increased credit risk inherent in the current environment. This was a result of a conservative credit appetite, which was tightened over a year ago”. At the interims, we detected the early signs of a gentle deterioration, and our loss expectations are unchanged.
Impact on estimates: In 2023, we have increased income marginally to reflect the faster-than-expected and profitable deposit growth (also in balance sheet forecast). The profit/loss effect is offset by dual running costs, leaving the bottom line unchanged. 2024 is affected by the full-period effect of higher costs.
Valuation: Our multiple approaches see a broad range of valuations: £11.58 DDM, £26.23 SOTP and £23.64 GGM (average £20.48, was £21.00), reflecting a marginally lower capital base, reducing the GGM and earnings mix changes. Trading at 57% of NAV is anomalous, in our view, with above the cost of capital returns and ABG’s growth outlook.
Risks: Margins may have peaked now, with the trend, and level, of interest rates a key driver to earnings. Credit is a risk, but ABG is conservative in lending, taking good security. Short-duration assets and a conservative culture mean there is no OSB read-across. Other risks: reputation, regulation and compliance.
Investment summary: ABG offers strong-franchise and continuing-business (normalised) profit growth. Its balance sheet strength gives it a number of wide-ranging options to develop organic and inorganic opportunities. The latter are likely to increase in uncertain times. Management has been innovative, but also very conservative, in managing risk. Having a profitable, well-funded, well-capitalised and strongly growing bank priced below book value is an anomaly, in our view.
Data policy – All information should be used for indicative purposes only. You should independently check data before making any investment decision and or seek professional advice. DirectorsTalk cannot guarantee that the data is accurate or complete, and accepts no responsibility for how it may be used.
