Across clients accounts, we have bought Clydesdale Bank, the UK based full-service bank focused on consumers and small and medium-sized enterprises (SMEs).
We are positive on the medium-term outlook for CYB for the following reasons:
- It is well positioned to grow its loan and deposit book due to structural tailwinds for UK challenger banks, reductions in its capital requirements, and its ability to source deposits at costs lower than other challenger banks;
- The business has significant balance sheet capacity to fund growth and should be able to increase its dividend payout ratio;
- Merger with Virgin Money in the UK we see as complementary to the existing business and product lines while also providing opportunity for further cost out and simplification benefits;
- CYB will be completely rebranded to Virgin Money which strategically enables management to improve the mix of assets by growing market share in the higher-margin business and personal lending portfolios while maintaining market share in the more competitive UK mortgage market;
- Strength in combination of CYB, a traditional bank with a large customer base, network and strong capital position with a mostly digital neo-bank in Virgin Money; and
- Short term uncertainty regarding the economic implications of Brexit has created a significant discount to what we believe to be the intrinsic valuation of the business.
We have funded the purchase through the sale of Ansell. ANN is a well-run business but at current valuations we see it as close to fully valued compared with the relative value in CYB. The positive catalysts in CYB flowing from the Virgin Money (VMA) acquisition and rebrand strategy mean that we see CYB as a more attractive proposition.
As with all equity investment, CYB is not without risk. While the strategic rationale behind the VMA merger is sound, as with all mergers, there remains the risk that the value of merger synergies (e.g. economies of scale, best practice, the sharing of capabilities and opportunities) may be overestimated.
If you have any queries, please contact SBB Wealth
WARNINGS AND DISCLOSURES: This material has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in this material is General Advice and does not take into account any person’s individual investment objectives, financial situation or needs. Before making an investment decision based on this advice you should consider whether it is appropriate to your particular circumstances, alternatively seek professional advice. Where the General Advice relates to the acquisition or possible acquisition of a financial product, you should obtain a Product Disclosure Statement (“PDS”) relating to the product and consider the PDS before making any decision about whether to acquire the product. You will find further details of the service we provide and any cost to you within the Financial Services Guide. Any references to past investment performance are not an indication of future investment returns. Prepared by EP Financial Service Pty Ltd ABN 52 130 772 495 AFSL 325 252 (“Elston”). Although every effort has been made to verify the accuracy of the information contained in this material, Elston, its officers, representatives, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this material or any loss or damage suffered by any person directly or indirectly through relying on this information.
EP Financial Services Pty Ltd
ABN 52 130 772 495 AFSL 325 252 (“ELSTON”)
GPO Box 2220
Brisbane Q 4001