Daily Stock Market Report (Mon 20th October 2025) - BME, CLIG, STB, HSP, GFRD, PLUS, DPP, VARE

Good morning! Judging by Mark's Week Ahead article on Friday, this could be a pretty interesting week. I hope you're all doing well!

All done for today, thank you!

---

Spreadsheet accompanying this report: link (last updated to: 23rd September).

---

Companies Reporting

---

Graham's Section

Secure Trust Bank (LON:STB)

Down 5% to 844p (£161m) - FCA Consultation on Motor Finance Redress - Graham - AMBER

The STB share price has already been under a lot of pressure this month:

On October 9th, the shares fell 20% after a profit warning. As we didn’t get to look at it that day, here are the details of that warning:

• The overall net lending book declined 4.1% in Q3 due to the “run-off” of Vehicle Finance, a market that it is exiting and that it now describes as “Non-Core”.

• “Core” net lending grew by 10.3% (Retail Finance 9.1%, Real Estate Finance 12.6%).

The vehicle finance book is shrinking faster than STB expected - but remember that it’s no longer making loans under this heading. Surely there can’t be that much variance in how quickly customers are repaying?

This table shows that the Vehicle Finance book fell 15.8% in the quarter, and even the “Core” book fell by a few percent:

As far as the profit outlook is concerned, this strikes me as even more important:

The Vehicle Finance business also incurred higher than anticipated impairment charges for the year-to-date with expected improvements in probability of default rates not yet being fully reflected in the IFRS9 accounting models. Underlying arrears and default rates in the portfolio remained stable but have not improved on H1 2025 to the extent anticipated.

The first sentence makes it sound like an accounting issue, but actually there is a real problem: arrears and default rates not improving.

It’s always very disconcerting when I see this sort of two-pronged failure: the loan book is shrinking faster than expected (which I guess includes car loan refinancings/early payments), and at the same time arrears and default rates aren’t improving as anticipated. So there’s less interest being received both from good borrowers and bad borrowers

On top of the above, “management also expects that the exit from Vehicle Finance may require additional provisions for onerous supplier contracts associated with new business originations”.

So that makes for a trifecta of bad news from Vehicle Finance. At least we know these aren’t going to be ongoing problems!

The “Core” business was reported to be still trading in line.

Profit outlook:

Whilst the Board now expects the Group's underlying profit before tax for FY25 to fall below market expectations by up to £9 million, due to the performance of Vehicle Finance, it remains confident of c. 30% year-on-year growth in underlying profit before tax.

View on the profit warning: we’ve been AMBER/GREEN on STB, and I’d be reluctant to downgrade to neutral on the back of this warning, as all of the bad news warning relates solely to a segment that is in wind-down.

For context, adjusted PBT at STB last year was £39m. And that was after taking a £62m special impairment charge related to the FCA’s “Borrowers in Financial Difficulty” review, which affected many companies in the sector. For a company with a market cap (today) of £161m, these are enormous profit figures.

I suppose the problem is that it’s all so complicated: do investors need to focus on the “Core” business only, or should they look at the overall “Adjusted profit before tax pre impairments” (which the company highlights), including vehicle finance?

Or how about adjusted profit before tax?

Or (the worst options) actual profit before tax, or actual net income!

I guess I’ve talked my way into downgrading this to a neutral stance, due to the complications.

Personally, I still see an enormous amount of value at the current market cap. But here at the DSMR we are trying to be disciplined, which typically means downgrading stocks when they issue bad news.

And the statutory result could be poor here, after all provisions and impairments.

Speaking of which, here is today’s news:

FCA consultation paper on its proposed redress scheme is towards the extreme end of outcomes previously expected from the Supreme Court judgment

STB expects to increase its motor finance redress commission provision by approximately £16 million to a total of £21 million

£16m is about 10% of the current market cap, after today’s share price fall; it’s a material amount, but it doesn’t fundamentally change the investment story here, in my view.

Checking last year’s full-year results again, I find tier 1 capital of £350m, and balance sheet equity of £360m (almost fully tangible).

So an additional £16m charge isn’t a game-changer, in my opinion.

The company’s calculations say the same thing:

On a pro forma basis, as at 30 September 2025 STB had a Common Equity Tier 1 ("CET1") ratio of 13.3%1. STB estimates that the additional expected provision of £16 million1 will reduce CET1 ratio by c. 50 basis points to 12.8%1, significantly above the Group's regulatory requirement of 9.6%.

Also worth noting that the FCA’s current proposed redress scheme (which I view as a worst-case scenario for the industry) would only result in an additional £6m provision, according to STB. There is still time for the consultation to soften the redress scheme.

Graham’s view: I’m going AMBER on this today, for two main reasons:

1. Discipline: we tend to downgrade stocks that issue profit warnings, because bad news tends to be followed by more bad news. Ed has written about this for years, e.g. see here.

2. Complexity: even though my personal view is that this stock offers excellent value, I acknowledge that the results are going to be highly complex, with a range of provisions, impairments and one-off costs. The motor finance compensation is not responsible for all of this complexity - the company’s own decisions and the manner of presentation also play a role.

I do hope to take a positive view on this again before too long, but for now I’m neutral.

The ValueRank is 97, but it’s not easy to buy against the type of news flow that STB has produced

---

Roland's Section

B&M European Value Retail SA (LON:BME)

Down 18% at 179p (£1.8bn) - Update on FY26 Guidance and Directorate Change - Roland - BLACK (RED)

Commiserations to shareholders here – today’s update from the value retailer is B&M’s second profit warning in three weeks. I covered the previous update here on 7 October.

The short version of today’s update is that the company has cut its full-year profit guidance range by c.7.5% after discovering a £7m accounting error in its H1 accounts.

The company is commissioning a third-party review of this issue and CFO Mike Schmidt intends to step down, although he will stay with the company until a successor has been appointed.

Let’s step through the news.

Accounting error: while preparing its half-year accounts, B&M discovered “approximately £7m” of overseas freight costs that had not been correctly recognised in cost of goods sold. This error followed a computer system update earlier this year.

The issue has been resolved but the company warns the impact on the outlook for FY26 is “material”.

Impact: H1 adjusted EBITDA is now expected to be £191m, instead of £198m previously – a reduction of £7m. This implies an H1 EBITDA margin of 6.9%, versus 7.2% previously.

Revised FY26 outlook: as a result, B&M has cut its FY26 adj EBITDA guidance to £470-520m. This is a reduction of around 7.5% from the previous guidance of £510-560m.

However, in numerical terms EBITDA guidance has been cut by £40m, versus a £7m reduction to H1 EBITDA. Intuitively, this seems like a bigger cut than we might expect to see for the issue described.

The company doesn’t highlight any other issues today but says the FY outlook has been recalculated based on “revised second-quarter margin run rates” (my bold).

I wonder if this suggests that the extra costs only apply to Q2 trading, not to H1 as a whole. If so, that would magnify the potential impact on H2, especially given B&M’s typical H2 seasonality.

Working through the numbers gives me:

• Seasonality: today’s revised EBITDA guidance suggests a 40/60 H1/H2 split, taking the mid-point of guidance. This would be a similar H2 weighting to last year. Applying the extra £7m of costs pro rata to the increased revenue expected in H2 would give me c.£16m of additional costs.

• Q2 + H2: adding £16m to £7m gets me to about £23m of additional costs/margin impact

That’s still a long way short of the £40m cut to today’s FY26 EBITDA guidance. I wonder if the £7m of unrecognised costs actually applied to a timeframe that was shorter than one quarter; that would magnify the FY impact.

The problem here is that I don’t know the margin assumptions being used for H2 or the timeframe over which costs were not being recognised. The company didn’t split out quarterly EBITDA in its H1 update and hasn’t been explicit today about the timeline.

Another issue that’s likely to have a big impact on FY EBITDA and earnings is the potential range of revenue outcomes for the year – the company reiterates this guidance today:

As previously disclosed, B&M UK's like-for-like ("LFL") sales are expected to be the principal driver of the outcome within this range, for which we reaffirm our assumption of a second half UK LFL percentage growth rate of between low-single-digit negative and low-single-digit positive levels.

A performance at the upper end of the range could drive positive operating leverage, boosting profits and operating margins – whereas a weaker result will have the opposite effect.

Roland’s view

Today’s profit warning extends a fairly dire run of downgrade for B&M over the last 18 months:

I’d previously turned neutral here on the basis that B&M’s problems seemed like they should be fixable by the highly-experienced new CEO, Tjeerd Jegen

However, I don’t have enough information to make the numbers add up in today’s update.

I’m also concerned by how low the group’s margin expectations appear to have fallen:

• FY24 EBITDA margin: 11.5%

• FY25 EBITDA margin: 11.1%

• FY26 revised EBITDA margin guidance (mid-point, consensus revenue): 8.5% (prev. 9.2%)

More broadly, I’m worried about the risk that trading in H2 could still end up falling below revised guidance.

In today’s RNS, the new CEO seems to suggest that returning to historic levels of profitability might be a medium term goal:

The Group continues to expect that with LFL growth, future adjusted EBITDA margins for B&M UK can stabilise at low-double-digit percentage levels over the medium term.

As Mark has commented in the past, when a company talks about the medium term, it often means the short term outlook is not very good!

Today’s update has left questions unanswered, at least for me. It also highlights a sharp fall in margin expectations – and says nothing about leverage, which will presumably now be higher than expected at the end of the year.

My previous move to a neutral view appears to have been premature. I am going to drop down to RED ahead of B&M’s H1 results being published (due 13 Nov). As things stand, I wouldn’t want to invest here without more information.