Daily Stock Market Report (Thur 14th August 2025) - CLX, STB, CAPD, FRAS, BPM, CABP, TRU, PBEE, RNK

Good morning!

Wrapping it up there, thank you.

Spreadsheet accompanying this report: link (last updated to: 24th July).

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Companies Reporting

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Graham's Section

Secure Trust Bank (LON:STB)

Up 8% to £11.91 (£227m) - Interim Results - Graham - AMBER/GREEN

This has a fairly interesting 1-year chart:

STB did not respond quite as quickly as others in the sector to the recent Supreme Court decisions re: motor finance, but they did get a short announcement out on the afternoon of the 4th August. They didn’t say much:

The Company welcomes the further clarity these decisions have provided for the motor finance industry.

STB also notes the update provided by the FCA on Sunday 3 August 2025, regarding its consultation on an industry wide compensation scheme. The Company awaits further information on the compensation scheme in order to assess fully any potential impacts on STB.

S&U (LON:SUS), by contrast, triumphantly welcomed the decision. The tone of STB was very different!

I was AMBER on this in May due to the legal and regulatory risks involved. The share price has basically doubled since then. So perhaps I was too cautious, but as you can see, the company itself has been very cautious in its own statements.

There are other cases - notably S&U - where I was happy to take a moderately positive stance at an earlier stage.

Today we have interim results from STB.

Highlights:

• Adj. PBT +36% (£23.3m) and this is very close to the actual PBT figure (£22.3m).

• Loan book up 6% (£3.8 billion)

• Net interest margin up slightly to 5.4%

• Return on average equity 9.6% (a year ago: 7.3%)

So everything has moved in the right direction, but it’s important to bear in mind that the leverage at work here more closely resembles a mainstream bank rather than the small, alternative lenders that I prefer to focus on.

From an accounting point of view, STB has assets of £4.3bn and equity of just £374m.

With such a large asset base relative to equity, the profit figure each year becomes very unpredictable..

From a safety point of view STB’s Tier 1 ratio - the standard bank measure of solvency - is 12.6%, which I think is pretty normal these days. Barclays and Lloyds are between 13-14%, for example.

STB seem confident in their position, and are raising the dividend from a low base:

CEO comment:

Secure Trust Bank has made continued progress towards delivering sustainable higher returns… We are on track to deliver £8 million of annualised cost savings by the end of 2025. We recently announced a strategic pivot away from Vehicle Finance which will enable further allocation of capital to our higher-performing specialist lending businesses…

It slightly puzzles me that they would move away from Vehicle Finance when the sector has just achieved legal clarity on its position from the Supreme Court.

Reaction to Supreme Court:

Overall the judgment was positive for the motor finance industry….

On the FCA’s possible redress scheme for customers who were treated unfairly:

There remains continued uncertainty as to the eventual cost for impacted firms. As a result, the Group has retained its remaining provision for potential redress and operational costs.

Note that the provision here is only £5.5m.

Outlook: the outgoing CEO provides a measured view on the economy.

Interest rates are not expected to fall further in 2025 with the market now expecting further rate cuts in 2026. The UK economy is expected to grow modestly through 2025, although anticipated tightening of fiscal policy and increased global uncertainty may impact the medium-term outlook. Unemployment remains elevated and is anticipated by many economists to peak in 2026 as employers adjust to higher national insurance contributions, before steadily improving to around 4% by the end of 2030.

The big strategic decision is to cease lending in Vehicle Finance, where they had over £550m of loans outstanding at the end of June. They note that this business “had high levels of historic defaulted balances due to the operational consequences of BiFD [note from Graham: Borrowers in Financial Difficulty]”.

They will be looking for growth elsewhere, beyond and within their existing Consumer Finance and Retail Finance activities:

We anticipate continued lending growth from our current sectors, but we are also assessing opportunities in adjacent and complementary markets.

Graham’s view

I will tentatively upgrade this to AMBER/GREEN, with the disclaimer that this share brings higher risk and less predictability than I’m normally comfortable with when it comes to lenders. I do not claim to be able to predict the path of future profitability here.

There are some positives that I can’t ignore:

• While STB has reacted in a very quiet way to the Supreme Court decision, it should limit the damage of any FCA redress scheme.

• Tangible book value per share is £19.37 and has been on an upward path over the last year. The share price has further to go if it’s going to narrow that gap from the current £11.91 share price.

• While earnings are unpredictable, the company is trading at a very cheap P/E multiple of only around 4x, according to market estimates. Even if they miss forecasts, this year’s multiple should be mid-single digits at most.

Therefore I’ll tentatively give this AMBER/GREEN. It’s not my top pick in the sector by any means but I think it deserves a moderately positive stance at this stage.

In general, I prefer lenders that charge higher interest rates, are more specialised, and can generate high returns without using the typical leverage that you see from major banks. STB is very much in the mainstream in that regard.

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Mark's Section

Capital (LON:CAPD)

Down 5% to 90p - H1 2025 Results - Mark - AMBER

I’ve recently sold out of this stock, having been a long-term holder. My original thesis was that the African drilling business was always much better quality than the market gave it credit for with a roughly 50% gross margin and 25% EBITDA margin. Yes, it is capital intensive, but in a market that was growing due to the gold cycle. They also recognised the cyclical nature of the business and provided drill-for-equity services for promising junior miners when the gold price was rising but capital in the sector was limited. Now the gold price is strong they increasingly tie customers into long-term production drilling. On top of this, they had a very rapidly growing capital-light labs business, which is very valuable as a separate business entity, but going for growth meant this was not reflected in the consolidated financials. Much of this thesis remains intact. For example, MSALABS continues to deliver revenue growth and they say has broken into profitability:

However, these financial results show the impact of what has gone wrong in the rest of the business:

Excluding the gains on their equity holdings, Net Profit after Tax has collapsed. Even here, these results may flatter the true picture. There are $1.7m of ERP implementation costs that are classified as exceptional . In addition, their depreciation policy in the mining fleet is largely linked to usage, and with lower mining activity they have only depreciated their $52.2m mining fleet by $214k. While the policy has some sense behind it, this figure looks light to me.

The issues are a classic case of diworsification. They entered the mining sector with a waste-stripping contract for existing customer, Centamin, at Sukari. While this lasted it was a profitable operation. However, the scale of the capex meant they raised money from the market at 58p, and after the initial four year contract, Centamin chose to not extend the work. At the same time, they had another mining contract in Gabon which was cancelled. This left them with a fleet and no contracts. They have since signed a deal with existing customer Barrick at their Reko Diq copper mine, which should utilise the majority of their fleet. However, the time taken to transport equipment and then ramp up operations in a completely new country have had a significant impact on revenue. Indeed, the breakdown of revenue between their operating segments shows that the other parts of their business are growing:

Even within the drilling side of the business, not everything is rosy and again its a case of diworsification. A move into providing drilling services in Nevada has meant rig count and revenue has grown, but profitability has taken a hit as this contract has struggled to deliver.

So why sell? Well the recent share price strength has meant that the share price was approaching all-time highs:

However, until recently, the EPS trend was downwards:

This trend has been reversed by the upgrade in guidance I commented on when they issued Q2 results in July and they re-iterate this today:

As previously announced, we increased our full-year 2025 revenue guidance, with Group revenue now expected in the range of $320-$340 million (previously $300-$320 million) and MSALABS revenue guidance at $55-$65 million (previously $50-$60 million). We had also highlighted at the FY 2024 results that margins would bottom in H1 2025 and the performance in Q2 supports this.

They have made some significant management changes, and a renewed focus on capital discipline means that net debt has come down:

This had started to become a worry, as net debt was increasing into a downturn in trading. However, one of the attractions of this company is that the operating cash flow is consistently good:

The issue has been that capex had been increasing above the rate of cash generation. So, assuming they aren’t being forced into restricting capex, this is also good news:

…while we finalise the delivery of our new contracts, we have kept tight control on our capital spend, with capex now trending to the lower end of our $45-55 million guidance for the year.

However, it is worth noting that gross debt has only declined by $2.3m since H1 2024. Finance costs for the half-year were $8.1m vs $8.2m. The interest rates they are paying (approaching around 10%) are steep. Interest income was negligible for the period suggesting that the $58m cash balance is not typical for the full period (or its stuck somewhere unable to earn interest). So despite apparent progress here, the debt level remains a significant part of the capital structure and valuations should be adjusted for this.

The issue is that they don’t look particularly cheap, even after recent EPS upgrades:

There is a discount to TBV, which indicates that there may be value. Especially if they can continue the recovery into 2027. The risk is that even if they do, the market starts to view them as a capital intensive cyclical business that deserves to trade on a typical 5-7x forward earnings, as it did for much of the recent past:

Mark’s view

Things are undoubtedly looking better here and there is significant scope for continued improvement. However, the shares don't look particularly cheap unless one makes assumptions several years ahead, especially for a sector that is never richly rated by the market. The size of the gross debt and the depreciation policy on mining equipment leave questions as to how much of this recovery will hit the bottom line. I still believe that this is a better quality business than the market gives it credit for. However, the near-term valuation metrics mean I am in no rush to buy back in. AMBER

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Cab Payments Holdings (LON:CABP)

Down 3% to 48p - Interim Results - Mark - AMBER

When I looked at these in January the share price was around 70p, I was surprised the market hadn’t taken a more negative view on the trading statement. When the results arrived in March, this may have focussed investors’ minds on the big drop in EPS from the previous year:

Things obviously went wrong in H2 last year, as in these interim results, they are keen to make comparisons between 24H2 not 24H1, for example:

· Business stable with modest growth, Total Income up 3% to £51.8m vs H2 2024

· Adjusted EBITDA up 8% vs H2 2024 to £13.1m and Adjusted PAT up 9% vs H2 2024 to £5.4m

It seems that H2 last year was impacted by Central Bank interventions affecting key income streams in Nigeria, West Africa and Central Africa. H1 this year does show modest improvement in most income streams and good cost control, as they say they have reduced headcount by around 20% this year:

Adjusted EPS comes in at 2.1p after the exclude the following items:

While it may be normal to exclude such things, apart from redundancy costs, a lot of these sound like the normal kind of activities for this sort of business:

Transformational costs comprise payments to consultants involved in strategic initiatives (6 months ended 30 June 2025: £307k and 6 months ended 30 June 2024:£412k) and business setup costs (6 months ended 30 June 2025: £250k and 6 months ended 30 June 2024:nil);

Transitional costs relate to dual running, recruitment and settlement agreements.

Even accepting these, there seems a long way to go in H2 to go from 2.1p EPS to 6.4p forecast for the full year. Indeed, broker Shore cut EPS forecasts today by 6% for FY25, 5% for FY26, and 3% for FY27. However, these just brings them more in line with the consensus on Stockopedia. These are still forecast for significant forward earnings growth and there are reasons to expect growth as leading indicators such as client numbers are up:

In the first half of the year we have onboarded 52 new clients of which 21 have already started to transact through our platform. This new cohort will mature in the coming months and will help to drive momentum in the second half of the year. This brings our total active client base to 573 (2024: 546).

And they seem keen to expand geographically, too:

With the granting of the licence to operate a representative office in New York, a proposed new office in Abu Dhabi (subject to regulatory approval) together with our existing Amsterdam and UK locations, we are increasing the reach and relevance of our business to a broadening client base. Our expanded footprint allows us to get closer to clients and immerse ourselves in a greater number of significant global payment streams.

Balance sheet:

The numbers here are huge, reflecting that this is the parent company of a bank, with £1.6bn of total assets:

The usual ratios used to test solvency of trading companies don’t apply. Instead we look at capital ratios:

The Group remains profitable, strongly capitalised with a CET1 ratio of 19.5% (FY 2024: 19.2%), and highly liquid with an NSFR ratio of 134.4% (FY 2024: 142.2%),LCR ratio of 138.8% (FY 2024: 136.5%) and cash generative with an operating free cash flow of £9.5m at a conversion rate of 72%.

19% CET1 seems reasonable, and is above the high street banks, but then you’d want it to be. The key point is that it appears to have improved during these six months.

Valuation:

This is on a very cheap rating for a company growing earnings:

Even more so, if we take Shore’s 11.9p FY27 EPS at face value. The market clearly has doubts that they will achieve this, and the history of warning so soon after IPO will have burnt many market bridges.

The company trades around TBV, which is good but not amazing value, for a bank. The lack of dividend may be normal for a company pursuing a growth strategy. However, it increases the risk that the cash flow reported isn’t actually distributable.

Management changes:

Following the post-IPO profits warning a number of management changes were instigated. Neeraj Kapur replaced Bhairav Trivedi as CEO in 2024, with Trivedi moved to a senior advisor position. James Hopkinson was appointed as the new CFO in March this year. This will have been his first opportunity to kitchen-sink his predecessor's work. As such, things do seem to have bottomed and are now improving modestly.

Mark’s view

This is not a sector I typically like to invest in. Payment and FX companies have been popular amongst investors. However, for every payment and FX company that does well, such as Equals, there is one that blows up, such as Argentex. One advantage is that CAB payments is the holding company for a bank and therefore reports their CET1 ratio, which doesn’t give cause for concern. However, that they can report issues due to Central Bank actions so soon after listing shows there are risks here that cannot be mitigated. That said, if this was a one-off issue and the company has taken the action to cut costs and grow a more sustainable business it looks very cheap on forecast earnings. These results don’t really give a firm indication either way, so I think I’ll stick to the AMBER rating for the moment, though.