Shawbrook beats forecasts and plays down BTL worries

The 'challenger' bank, which was formed when the former RBS Equity Finance acquired the banking licence of Manchester-based Whiteaway Laidlaw in 2011, increased its loan book 44% to £3.36bn in the calendar year.

Having acquired providers of mortgages, secured loans, asset finance and asset- based lending in the run up to listing, Shawbrook launched an ISA product launch in the first half of last year and a full market instant access account in December.

This growth in the loan book, plus net interest margin creeping up to 6.2% from 6.1%, helped grow profits before tax 63% to £80.1m, with earnings per share up 77% at 26.9p. Consensus forecasts had pointed to PBT of £78m.

The group reported an improved cost of risk at 24 basis points, from 36bps a year ago, and cost-to-income of 48.3% was a continued improvement, on track to be below the 40% target by 2017.

"2015 was a significant year for Shawbrook," said chief executive Steve Pateman. "We achieved a successful IPO and continued to grow our core businesses, underpinned by a strong well-capitalised balance sheet which will support our ambitions for the near and medium term.

On the outlook, he said Shawbrook has "invested for the future and, notwithstanding a softer economic outlook, remain confident that we will continue to generate strong through the cycle returns consistent with our stated strategy".

Capital ratios were strengthened by the IPO, with a CET1 ratio of 14.4% at year-end versus 11.6% a year before, with total capital further strengthened by a £75m issuance in October that saw it enter 2016 with a total capital ratio of 18.0%.

Addressing worries about the buy-to-let sector, the company said it operated "to a more conservative risk appetite than many in the market, for example LTV, interest rate stress and in addition we have the advantage of being less exposed to buy-to-let than our peers and we are strongly capitalised".

Analysts at Peel Hunt, which recently selected Shawbrook as its preferred pick in the specialist lending banking segment, said it continued to forecasts 2016 PBT and EPS of £98.1m and 29.4p before meeting management.

Shore Capital said it expected to upgrade its forecasts and continue to believe that the valuation of the specialist lenders sub-sector is wrong, with Shawbrook being valued at 10 times earnings with 20% EPS growth forecast.

"We see that Shawbrook is being only modestly impacted by the buy-to-let budget changes. We remain concerned that current banking returns are exceptional with substantially less impairment than at the peak of the economic cycle.

"Competition remains muted but is picking up and margins are exceptionally high. Consequently, the current ROE being achieved by the new and specialist lenders is not sustainable in the long term."

"While we are cautious about long term returns, we believe that this year and next year's volume growth will remain very strong at margins that are expected to deliver a very substantial economic profit for shareholders. We believe that it is too early to call the top of the cycle and the market is wrong in pricing in a substantial recession."