Shares in challenger bank Aldermore (LSE: ALD) are moving higher this morning after the company issued an upbeat first-quarter trading update.
For the period, Aldermore reported a 6% increase in new customer loans to £7.9bn, up from £7.5bn at year-end 2016. At the same time, customer deposits also grew by 5%, taking the value of customer deposits held at the bank to £7bn, up from £6.7bn at the end of the last quarter. The group’s net interest margin (NIM), a key measure of banking profitability as it measures the gap between how much interest it is generating on its lending compared to the interest paid out to depositors, remained stable at 3.5%. Even though the NIM did not change during the period, Aldermore’s is still an industry leading-figure as most high street banks are reporting margins below 3%.
As well as the bank’s impressive NIM, its tier one capital ratio stood at a respectable 11.5% at the end of the reporting period. Tangible book value per share rose 5% quarter-on-quarter to 160.3p.
Undervalued growth
Today’s results from the business show that it is on track to hit City forecasts for growth for the year. Analysts are currently expecting the group’s earnings per share to grow by 17% this year followed by a growth of 8% next year. If management can hit these targets, Aldermore will have improved pre-tax profit threefold in just five years.
However, despite this impressive growth, its shares are trading at a depressed multiple of only 8.8 times forward earnings. It seems the market is concerned about the bank’s exposure to the UK economy following Brexit. But based on today’s figures, this concern seems unwarranted. Overall, if you’re looking for high-growth at a low price, Aldermore could be a great fit for your portfolio.
Growing wealth
Wealth manager Rathbone Brothers (LSE: RAT) also announced its first quarter results this morning. Just like Aldermore, it reported strong growth across the business during the first three months with funds under management up by 4.7% to £35.8m. Fee income generated from operations rose 22% year-on-year, reflecting positive markets and growth in business. Commission income also showed a substantial uplift of 12.2% and net operating income for the overall investment management business rose 18.3%.
Rathbone’s growth over the past five years has been nothing short of explosive with pre-tax profits surging 100% from £38.5m to £76.2m as predicted for this year. Over the same period, earnings per share increased by 62%. Analysts are expecting earnings growth of 3% this year followed by 11% for the year after.
Unfortunately, shares in Rathbone’s are not as cheap as those of Aldermore as they currently trade at a forward P/E of 18.6. Nonetheless, with double-digit earnings rises projected for the years ahead, it looks as if it’s worth paying a premium for the shares.
