Friday newspaper share tips: RBS, StanChart, Aldermore
By Alexander Bueso
Date: Friday 12 Aug 2016
(ShareCast News) - Groucho Marx's warning not to be fooled if a man looked and talked like an idiot (he really was one) may have rung in the ears of investors in lenders' so-called 'co-co' bonds during the first quarter, the Financial Times's Lex column mused.
Just like the shares of their underlying issuers, they were swatted lower along with the price of their stocks.
Nevertheless, Marx was wrong (or investors rather), Lex said.
Just a week after posting an interim loss of £2bn which sent its share price tumbling, Royal Bank of Scotland issued a $2.65bn coco - the single biggest deal ever - whose price duly rose.
Much the same occurred with StanChart which followed close on its heels with a $2bn issue which was oversubscribed.
Some analysts believe those instances are a reason to be wary.
Not at all, the tipster said.
Indeed, those analysts are missing the point. Investors are starved for yield and the recent regulatory stress-tests revealed that lenders' capital cushions were comfortably above the levels needed even in the event of a crisis, Lex said.
Investors in challenger banks are anxious in the face of the soft economy, yet while those worries are legitimate at least in the case of Aldermore they are probably overdone, The Times's Tempus said.
Sharply lower Gilt yields, a slowdown in housing and the Brexit vote have all taken their toll.
Indeed, the bank's core capital ratio was eroded from 11.8% to 11.0% over the first half of 2016.
What's more, nasty surprises might yet manifest themselves over the coming 18 months, knocking the lender off course and perhaps even triggering a capital raise.
Nonetheless, fretting about lower interest rates is overdone, as Aldermore has more of a cushion than mainstream banks.
Its net interest margin was unchanged over the first six months of the year at 3.6%.
At six times forecasts for full-year profits and one times tangible book value the stock is cheap, even if that does not mean that it can't get cheaper.
Aldermore is vulnerable to a downturn in the UK - true - but the shares are inexpensive. Hold, Tempus says.
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