Arbuthnot Banking Group PLC share price, company news, analysis and interviews

Arbuthnot Banking Group plc (LON:ARBB) has released its interim results for the first half of FY24, demonstrating a resilient performance that aligns with expectations, despite a challenging economic environment. Shore Capital, the broker covering the company, has highlighted ARBB’s robust results, noting its ability to navigate through interest rate headwinds and ongoing market pressures.

One of the standout features of the report is ARBB’s cautious but strategic growth, particularly in its higher-yielding specialist divisions. Customer loans have grown by 3% year-to-date, and an impressive 12% increase has been observed in the specialist divisions. This strategic shift is allowing the bank to tap into new opportunities while maintaining its strong position in a competitive market.

Though profitability has slightly decreased year-on-year, with a pre-tax profit of £20.8 million compared to £26.4 million the previous year, these figures remain on track for the forecasted £36.8 million for FY24. Vivek Raja, analyst at Shore Capital, notes that the compression in net interest margins (NIM) from 6.1% to 5.2% was expected, given the rising deposit costs. However, ARBB has effectively mitigated these challenges by focusing on lower-cost commercial transactional deposits, which saw a remarkable 9% increase.

In terms of wealth management, ARBB has shown exceptional growth, defying wider industry trends. With assets under management (AuM) increasing by 15% year-to-date and net flows annualising at 16%, the wealth division has proven to be a strong performer. This is a testament to the bank’s ability to adapt and innovate in a rapidly evolving financial landscape.

The company also paid a healthy interim dividend of 20p, with a special dividend of an additional 20p per share, reinforcing its commitment to delivering shareholder value. Shore Capital views ARBB’s valuation as “undemanding,” especially with its sustainable return on tangible equity (RoTE) in the low-to-mid teens, projecting 12% for FY24.

Gary Greenwood, another analyst at Shore Capital, points out that the outlook for ARBB remains cautiously positive. While there are potential short-term impacts from future interest rate cuts, ARBB’s growth strategy, coupled with its focus on relationship banking, positions it well to seize significant market opportunities in the long term.

On a Final Note

Arbuthnot Banking Group continues to demonstrate its strength and adaptability, even in a tightening financial environment. With steady loan growth, a strong wealth management division, and a commitment to shareholder returns, ARBB remains a promising player in the sector. As the bank continues to navigate interest rate fluctuations and market challenges, its strategic focus on higher-yielding divisions and relationship banking will be key drivers of its future success.