Dear clients and colleagues,
We recently reduced our under-exposure in the financial sector. One company we added to our portfolios is OneSavings Bank.
OneSavings Bank (OSB), a UK challenger bank, focuses on the professional landlord buy-to-let market. In addition to the buy-to-let market, the bank is also involved in residential, commercial and high-networth lending. OSB conducts the majority of its buy-to-let business in the greater London area and in the Southeast UK. It distributes its product mainly through a large number of intermediary brokers. Its average loan is £260,000, and the entire lending book is secure financing. Despite ongoing investment in the business, OSB has delivered great performance over recent years.
Looking at OSB’s fiscal year 2018 results and Q1 trading updates, we find that revenue, costs and impairments were all better than expected. OSB is one of a few banks that can deliver good top- and bottom-line growth while maintaining a strong return on equity of above 20%. The stock appears cheap, trading at 1.4x tangible book value, 6.5x expected 2019 earnings and offering a 3.6% dividend yield.
OSB recently proposed a merger with another bank, Charter Court. If approved by their respective boards, the new combine entity will represents one of UK’s biggest specialist lenders. The new group is expected to benefit from a better-diversified loan book and a more varied source of funding. The cost synergies realized should offset the higher insurance costs.
Have a good week.
The Global Alpha Team
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