Numis reiterates 'buy' rating on Aldermore

UK bank Aldermore’s ‘buy’ rating and target price of 212p has been reiterated by Numis despite the market forecasting a recession materially worse than the credit crisis.

Numis said it has already downgraded its forecasts to reflect a mild recession with its impairment charge increased to 59 basis points (bps) in 2018 from the 26bps reported last year.

“For Aldermore to reach break-even we estimate impairment would need to increase to 208bps (8x the 2015 charge in bps) and to get to the net tangible assets to the current share price, impairment would need to increase to 716bps (28x the 2015 charge in bps).”

“For this scenario to validate the current market valuation, Aldermore needs to report a £96m loss in 2018 and thereafter, never generate a sustainable economic profit.”

Consequently, Numis believes the market price implies a high probability of insolvency. Numis said the insolvency would have to come from impairment as the Bank of England has put in place liquidity measures that Aldermore would have access to if needed.

“We currently forecast a mild technical recession in H1 2018 as investment, employment and household incomes gradually fall reducing consumer expenditure leading to a 5-10% nominal decline in house prices,” Numis added.

Shares fell 4.66% to 106.21p at 0942 BST.