Barclays ups Aldermore and OneSavings to 'overweight'

Barclays upgraded challenger banks Aldermore and OneSavings Bank to ‘overweight’ from ‘equalweight’ as it took a look at UK specialist lenders.

It lifted its price target for Aldermore to 200p from 150p and said it should benefit from growth in the specialist buy-to-let and SME segments where demand is underserved.

“We believe the loan book is better diversified than given credit for and able to insulate against potential further headwinds to BTL (40% loan book), with 36% Resi/SME Mortgages and 24% Asset/Invoice Finance, areas which have grown quickly and continue to do so.”

The bank upped its price target on OneSavings to 340p from 235p, noting the shares have been sold off sharply in 2016 on fears of a strong reversal in buy-to-let volumes, Brexit and potential changes to BTL risk weightings.

The stock is now down 25% year-to-date and on a price-to-earnings multiple of around 6x 2017 earnings looks particularly cheap, Barclays said.

“We upgrade to OW on growth outlook, resilience versus BTL headwinds and valuation.”

Barclays said that from July 2015 to July 2016 there was considerable anti buy-to-let sentiment in the media.

“Some measures of control were perhaps inevitable to slow rates of growth exceeding 40% year-on-year. However, we now believe we are past the nadir for BTL outlook.

“We view further regulatory and taxation controls as unlikely if the UK government does not want to risk pushing the economy into a post-Brexit recession. We do not believe that a reversal of any BTL-related stamp or income tax is likely in the Autumn Budget.”

At 1045 BST, Aldermore shares were up 1.1% to 177.50p and OneSavings shares were up 4.1% to 279.71p.