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Daily Grime - TBC Bank; Milton Group (MGR) Suspension

ByJeremy Grime
Published 14/11/2019, 08:15
Updated 09/07/2023, 11:32

I was interested to read that shareholders were referred to as “Adventurers” in the 17th century by The Hudson Bay Company. I could relate at Mello yesterday.

TBC Bank Group PLC (LON:TBCG) – Q3 Update

Share Price 1392p

Mkt cap £767m

Conflict Disclosure: No Holding

  • Results The story of strong growth, tightening NIM and sharp reduction in cost of risk mirrors the trends that Bank of Georgia reported recently. PBT was up 18% to GEL 126.8m. NIM reduced to 5% from 5.1% while cost of risk fell from 1.9% to 0.7%. The cost income ratio was up form 37.9% to 39.9%. The ROE was 20.4% from 21.2% previously. Tier 1 ratio was 11.9%. The outlook highlights the bank’s performance in the affluent sub-segment and reiterates the medium term targets of 20% ROE, cost/income below 35%, loan book growth of 10-15% and a payout ratio of 25%-35%

  • Estimates 9 months into the year the company has delivered GEL 380m which is 71% of the GEL 535m forecast which looks about right.

  • Valuation The 20% ROE is valued at 1.4X book value. PER 5.9X Yield 4.7%.

  • Conclusion For a cheap stock such as this share prices generally follow profits over the medium term. However, in an environment of reducing rates it becomes harder for banks to maintain their ROE and consequently their valuation, which may explain the 25% share price retrenchment over the last 6 months. It is hard to see any valuation uplift in this environment, but the profits will continue to grow.

    • Miton Group Plc (LON:MGRM) – Suspension

    Share Price 56p

    Mkt Cap £97m

    Conflict Disclosure: I Hold

  • Suspension The announcement says the shares are suspended pending an announcement which generally sends a shudder down the spine. However it was the EGM approving the merger with Premier yesterday so we can expect the shares to convert into Premier Miton Group stock shortly. The exchange ratio is 0.30186 so shareholders will get the equivalent of 54p of Permier stock at the current price of 181p and a 4.9p special dividend which looks good value for 56p.

  • Synergies The synergies achieved over 2 years amount to £7m which adds 27% to PBT over the 2 year period.

  • Valuation The premier PER is 13 and yield 5.7%. Premier shares are up 8% since the merger was announced suggesting that the synergies haven’t been fully priced in or the merger will cause an outflow of funds or people.

    • Conclusion With all 3 house analysts unable to provide forecasts or numbers I suspect this is an inefficient market and when the black out period ends the share could well start to anticipate some revenue synergies of the combined distribution as well as the cost synergies.

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