The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
Plus the games in the pipeline actually look quite good from the previews. It’s just a question of patience as the volumes being sold a tiny in comparison to the shares in issue. I actually increased my holding here recently (wish I’d waited), but this drop on low volumes isn’t concerning in my view.
This is also being destroyed on tiny volumes, all it would take is some persistent buying and the price would soar. Today it has dropped by 20% on less than £50k worth of shares being traded. Personally I think this is the drop before the rise.
Wouldn’t surprise me if this is all priming for a takeover, CEO has such a strong majority holding he could orchestrate taking this back under private ownership without challenge.
OSB reported that in the first nine months of the year it had achieved 7pc loan growth. This was previously the target for the whole of 2023 and guidance for the year has now been raised to 9pc.
Its ability to win market share thanks to its specialist focus is a key long-term attraction. It is also a reason to think it could weather tougher markets better than most as the specialist focus is reflected in the bank’s strong reputation for risk management.
On this front, there’s reassurance from low levels of problem loans and average rent-to-interest cover of 178pc on OSB loans and 154pc for its Charter Court Financial brand, which accounts for about 45pc of gross lending. Meanwhile, a scarcity of rental properties makes landlords well placed to pass rising interest costs on to tenants.
OSB’s resilience should also be helped by its bias to professional landlords who use corporate structures to secure tax and property management advantages.
This buy-to-let specialism keeps costs down compared with mainstream banks. OSB expects its costs to amount to around a third of its income this year, compared with more than half for many larger rivals.
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The branchless bank’s low-cost model underpins its attractive levels of return on tangible equity. Even after the profit hit in the first half of this year, analysts expect the metric to reach 15.2pc in 2023 before rebounding to the high teens from next year.
It is not hard to see why, following the slump in the shares this year, top fund managers are betting that OSB’s valuation offers protection from further share price falls and the potential for significant gains should the third-quarter results prove to be a taste of things to come.
Questor says: buy
Ticker: OSB
Share price at close: 347.2p
We sold this bank, then the shares lost 25pc – now we’ll buy again
Questor share tip: buy-to-let specialist does not deserve to be lumped in with lowly valued high street giants
By
Algy Hall
13 November 2023 • 6:00am
In March, Questor advised readers to sell OSB and was right to do so – shares in the specialist buy-to-let mortgage lender have lost a quarter of their value since.
This column is relieved to have sold before a profits warning in July that sent OSB shares tumbling. The lender disclosed a £180m hit because mortgage borrowers were refinancing more quickly. Broader investor unease about the banking sector, which prompted our advice to sell, has meanwhile persisted.
Now, however, we’re recommending the shares again, guided by the investment decisions of some of the world’s best-performing fund managers.
Ten of these professional investors – each among the top-performing 3pc of the 10,000 equity fund managers tracked by the financial publisher Citywire – own shares in OSB. As a result the stock is rated AA – just below a top AAA rating – by Citywire Elite Companies, which rates companies on the basis of their backing by the best-performing fund managers.
OSB’s share price
Line chart with 268 data points.
View as data table, OSB’s share price
The chart has 1 X axis displaying Time. Data ranges from 2022-10-21 00:00:00 to 2023-11-13 00:00:00.
The chart has 1 Y axis displaying Pence per share. Data ranges from 280.8 to 568.5.
End of interactive chart.
What’s more, many of those investors have been adding to their stakes over the past few months. They include Matthew Tillett, who bought more shares for his Premier Miton UK Value Opportunities fund in July. Tillett took over the fund in November last year after delivering four times the market return over three years on the fund he ran before.
He told his investors that shares in specialist lenders such as OSB were trading on valuations as low as those of Britain’s biggest banks, yet they were “less dependent on the interest rate environment to sustain high levels of profitability”.
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Trading at just 0.6 times forecast book value, shares in OSB are close to the cheapest they have ever been on that measure and 30pc cheaper than when we advised readers to sell in March. A forecast dividend yield over the next 12 months that stood at 7.1pc when we sold has meanwhile climbed to 9.9pc – a level that suggests the market expects a cut.
But a trading update earlier this month indicates that the bank may be putting its problems behind it. There was no worsening of the situation that caused that big hit to profits from earlier in the year, when OSB was burned by borrowers spending less time between fixed-rate mortgages on stop-gap “reversion” rates that are lucrative for the bank.
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Metro Bank has been in dire straits for ages. OSB is an entirely different proposition. If anything the news this week of a huge shortage of rental properties and people entering bidding wars should have had a greater influence on this share price (in a positive way).
Good to hear it Neon. I'd imagine, with house prices falling and mortgage rates being as high as they are that buy to let will prove more popular and rental demand (and prices) will increase.
I'm still shocked this hasn't seen an uptick yet, but have some more money becoming free next month so if it stays at these levels I'll probably go all in and wait for the sentiment to turn.
Thanks Bigpercy. It's good to see I'm not the only one here.
All the fundamentals suggest it's a great company. I just can't fathom who is continuing to sell at this level. It must be quite heavy to continue to drop despite the buy backs pushing it the other way.