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Challenger banks in the spotlight on back of surprise bid
Thursday 09 Mar 2017 Author: Tom Sieber

Challenger bank Shawbrook (SHAW) has received a takeover bid from the company that originally floated it on the stock market. Is this the start of a new wave of takeovers among challenger banks?

Small business and retail bank Aldermore (ALD) could be the next target, according to some market commentators.

Despite announcing a 34% increase in underlying profit for 2016 and revealing it will consider introducing dividends this year, it trades on a fairly low 2017 price-to-earnings ratio of 8.2 times at the current 232p share price.

‘Aldermore is a well-run business and well-positioned to continue to take market share in its specific niches,’ says investment bank Liberum.

Shawbrook earlier this week said it had rejected a 332.7p approach from 38.9% shareholder Pollen Capital and BC Partners.

It also revealed a lower bid from the parties of 307p on 13 January. Don’t rule out another improved bid, says Liberum.

So why is it a takeover target? Shares in many UK financial companies including Shawbrook struggled in the wake of the UK’s vote to leave the European Union. Compounding weak sentiment towards Shawbrook was a £9m irregularity on loans in its asset finance division.

‘We see Shawbrook as a strong business suffering from a perception problem, and our base case assumption is that as it continues to grind out robust results quarter after quarter, the stock should re-rate,’ says Investec.

‘If the proposal from Pollen and BC progress, shareholders may yet see that process accelerate.’ (TS)

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