Arbuthnot Banking Group plc (LON:ARBB) was the topic of conversation when DirectorsTalk interviewed Gervais Williams, Co-Fund Manager of The Diverse Income Trust plc (LON:DIVI)
DirectorsTalk asked: Arbuthnot Banking Group reported a 24% increase in funds under management and administration over the past 12 months to £2.5 billion, alongside strong deposit growth and continued wealth management inflows. What does this mix of growth mean for earnings quality and returns going forward?
Gervais noted: Arbuthnot Banking is a small company. If you remember, of course, many of the financial stocks have done very well, banking companies particularly have done very well. You have seen many of the mainstream banks moving up three or five times over the last five years.
This is a company which is only £142 million market cap and also, despite that, it’s got £16 worth of assets versus its share price of £8.75. So, it is standing at a very overlooked valuation. That’s despite the fact it has an extraordinary record. It’s one of the very few companies which was very resilient during 2008 and the global financial crisis. Far from it falling over, it set up a new bank, which it later demerged to a company called Secure Trust.
Most particularly, it’s got great scope to take market share. It’s been careful not to over-lend too much at low rates, it wants to get good rates but it’s going to be taking market share, particularly in the corporate area. We think it can give not just outstanding service, but actually I think it can grow its services in this area. We’ve already seen that happening elsewhere. So it’s a very overlooked company.
The market cap at £142 million is just remarkably low, given its prospects and it’s just the kind of company we like: it produces good and growing dividends, but when it comes right, its share price can come very right and that’s really the kind of aspect we look for in The Diverse Income Trust.
