Liberum initiates coverage of challenger banks, prefers OneSavings

Liberum initiated coverage of five challenger banks with three ‘buy’ recommendations and two ‘hold’ stances.

The brokerage started OneSavings Bank, Shawbrook and Aldermore at ‘buy’ with price targets of 395p, 290p and 245p, respectively.

It said OneSavings is making regulatory change in the buy-to-let market work in its favour.

“Our buy-to-let matrix shows that it is the most positively geared to the fastest growing segments, namely corporate and multi-property landlords, of its peers. Advantageous market positioning, a risk management track record as strong as its peers and a rising CET1 capital ratio make OSB’s 10% valuation discount to the peer group average.”

As far as Shawbrook is concerned, it said that following the large impairment in the first half, the redemption continues,

“We apply a valuation penalty to the company to compensate investors for the additional risk of owning the stock, as it continues to rebuild trust with regard to risk management. However we still find 14% potential upside. Consensus has set a low bar for Shawbrook, and we expect upgrades to our level.”

Liberum said Aldermore offers a strong growth profile with protective attributes. “We expect diversified growth, while agility within the business means the company can exploit specific opportunities as they arise.”

The brokerage started Paragon and Close Brothers at ‘hold’ with 395p and 1,400p price targets, respectively.

It said that while it sees the attraction in Paragon’s strategy, meaningful loan book diversification will only happen over the longer term.

As for Close Brothers, it said its performance track record and dividend stability through the cycle are its key attractions, but noted competition is high and may pressure pricing or net loan book growth.

At 1055 GMT, OSB shares were up 3.4% to 349.10, Shawbrook was up 1.4% to 254.20p and Aldermore was up 0.3% to 221.30p.