Wednesday, 25 February 2015

TSB - the price at which to say 'yes' to the shares

Since their listing in the middle of the last year - and also since my last write-up on the stock in December (link here) - shares in the UK bank TSB have continued to fall:

Are they interesting enough to buy now?

The simple answer is not yet.  At the above link I noted a return on equity generation a couple of years hence which just about justified the prevailing valuation.  At a valuation point 4% odd below that level the return profile of the company would have had to move on progressively to make the numbers work.  

Unfortunately the reality is that despite 'headroom for growth' via a firm-looking tier 1 ratio...

...and a continued good UK current account win ratio (replete with positive comments from independent consumer bodies and the like)...

...the company is not seeing much net progress despite an inherent flat interest income line.  It really is easier to be in simplification mode (RBS, Barclays amongst the UK peers) than attempted expansion mode.

The cost profile/profitability changes are not the most fantastic news either.

My conclusion from all of this: take a 10% discount to help adjust for all the above factors.  From a 270p base as in December that implies c. 245p or below.  I have noted the level down.  

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