The Financial Grimes: An opportunity where others are fearful

by Jeremy Grime, an ii contributor |

This top City analyst reviews the financial sector stocks making headlines today.

Jeremy Grime spent 15 years as a financial sector analyst, working at Altium Capital, RBC Capital Markets, Panmure Gordon and most recently as Director of Research at finnCap. Jeremy is also a qualified accountant.

Jeremy's blog is written with more experienced investors in mind. However, we have included a brief glossary at the bottom of the page to help those less familiar with some of the language used. For more on key financial metrics and valuation ratios click here.

  • Today 'A level' results out today may cause some drama – which may be useful given the prophets of doom are likely to be out in force with yield curves in both UK and US inverting for the first time since the financial crisis, predicting ever lower rates and recession. The same day that WeWork's IPO document landed on desks, informing us the founder has a line of credit of $500 million secured by a pledge against his shares and the $1.9 billion of losses last year are very "cost efficient".
  • History Perhaps we have been here before. There are parallels with the the 1680's when the war with France led us to have quite a bit of debt, so deflationary policies were pursued. Today we call it QE, but back then the government confessed to "finding" some currency in a vault that hadn't previously been in circulation. The result was some wild speculation in wreck salvaging companies and other new technologies such as the "Company for the Sucking Worm Engine" which aimed to produce a fire engine. My favourite was a company which listed in order to "drain the red sea to recover the gold abandoned by the Egyptians after the crossing of the Jews". Eventually, the Bank of England was formed to deal with the debt shortly before it all came to an end.
  • Results The net result of that debt bubble was a law being passed in 1697 to "refrain the number and ill practices of brokers and stock jobbers". Their number was restricted to 100. We had another Act to regulate markets after the South Sea Bubble in 1734 and the SEC Act in 1929. Post the GFC we had the Dodd-Frank Act. 
  • Conclusion It is possible the yield curve is predicting deflation rather than recession. Neither are fun. The likely outcome is some new legislation after the speculative bubble unwinds. In the meantime, it is possible that fundamentals may make a return to fashion. I wonder if we will remember the word "Fintech" in 10 years-time.

News:

 

TBC Bank – H1 Results  

Share Price 1322p

Mkt Cap £727 million

Conflict Disclosure: No Holding

 

TBC Bank (LSE:TBCG) is Georgia's largest retail bank.

  • Results Underlying net profit up 19% to 258 million Georgian Lari (GEL) from a loan book up 25.2% year on year to GEL 11.1 billion. ROE 22.7% from ROA of 3.3%. NIM was 5.8% and impairments were down (as they were at Bank of Georgia (LSE:BGEO)) from 1.6% to 1.3%, while the cost income ratio was a little higher at 37.9%. Tier 1 ratio was 12.4%, against a requirement of 11.9%. The outlook is positive, with accelerating economic growth expected.
  • Estimates Full-year estimates anticipate 14% EPS growth which looks undemanding given H1 numbers. Could be scope for upgrades.
  • Valuation Dec 19 PER 5.2X Yield 5.5%. Price/Book 1.1X for 22.7% ROE.
  • Conclusion The shares are down 23% since June.  Sometimes it pays to be greedy when others are fearful.
Glossary
PBT profit before tax
EPS earnings per share
DPS dividend per share
ROE return on equity
EBITDA earnings before interest, tax, depreciation and amortisation
PER price earnings, or PE ratio
Yield dividend yield
FCF free cash flow
NAV net asset value
Price/Book (PB) a company's share price versus what it owns
Book Value a company's worth after subtracting debts and liabilities from assets
AUM assets under management
FUM funds under management
ARPU average revenue per user
OTC over-the-counter
FCA Financial Conduct Authority
ESMA European Securities and Markets Authority

For information about Jeremy's 'deep dive' company analysis, you can email him at jeremy@charltonillingworth.co.uk

Jeremy Grime is an independent equity markets analyst and freelance contributor, not a direct employee of interactive investor.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation, and is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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