Focus on Return on Required Equity

STB’s recent announcement of the second tranche of its £10 million share buyback programme provides confidence in its current capital position and future capital generation. We forecast a 13.4% FY26E CET1 ratio, climbing to 13.8% and 14.4% in FY27E and FY28E. Adjusting forecasts for a 13% required CET 1 ratio we forecast a Return on Required Equity – continuing businesses – adjusted, of 13.0% for FY26 rising to 15.4% in FY27, and 16.5% in FY28 providing options for capital redeployment and distribution.

Focus on Return on Required Equity

Secure Trust Bank’s (STB’s) interim results demonstrate clear progress towards FY26 guidance and its FY28 medium term targets of a 16% return on average equity and circa 10% annual loan growth. FY26 guidance has been reiterated and our forecasts are unchanged. The Consumer Vehicle Finance sale has contributed to a substantial uplift in CET 1 alongside a significant reduction in operating costs and funding requirements. STB announced a 5% increase in the interim dividend (to 12.4p) and has completed (since the half-year) the first £5 million tranche of its £10 million buyback programme.

H126 – foundations for profitable growth

Secure Trust Bank (STB) has published a reassuring Q1 2026 trading update, and is on track to meet FY26 guidance. Application for regulatory permission for the intended £10m share buyback programme has been made and is pending approval. Q1 26 Continuing operations year-on-year net loan growth was 6.6%, with strong performances in Retail Finance (+7.3%) and Business Finance (+6.1%). New product initiatives outlined in the 12 March Capital Markets Event have gained traction and lending activity has commenced across the new products.

On track to meet FY26 guidance

Secure Trust Bank (STB) has announced that, following an initial assessment of the FCA’s recently published final rules, no adjustment to its motor finance commission provision is currently required. STB commented that the ultimate financial impact remains uncertain, and considers that the FCA’s approach to assessing fairness is not aligned with the Supreme Court judgment in Johnson vs FirstRand, where the test for unfairness is highly fact specific and must consider all relevant factors.

Initial assessment: No further motor finance provision required

Secure Trust Bank’s FY25 results were underpinned by 8% loan and deposit growth, with a stable net interest margin and a substantial reduction in the cost income ratio. Strong CET 1 accretion widens STB’s options for growth and/or distributions to shareholders. New targets for loan growth and cost/ capital efficiency, backed up by credible business plans, are aimed at delivering a 16% Return on Average Equity in FY28.

Good results and ambitious new targets

Secure Trust Bank (STB) has published a reassuring FY25 trading update showing clear evidence of a pivot towards higher-growth, higher-profitability businesses. In our view, STB’s current valuation still does not reflect the profitability potential of the core businesses, which generated an annualised 13.7% ROAE at H1 2025. Strong loan growth in the continuing businesses was matched by equally strong deposits growth. Reduction in the discontinued loan book continues at pace and the sale of the Consumer Vehicle Finance book is progressing well.

Roadmap to increased growth and profitability

Secure Trust Bank’s (STB) original decision (July 2025) to cease new lending in the Vehicle Finance (VF) business has now been turbo-charged via sale of the Consumer VF business at a premium to book value. The transaction will increase STB’s 30 September 2025 proforma CET1 ratio by approximately 195bps to 14.8%, providing options for capital deployment in higher-returning core businesses and in share buybacks (subject to regulatory approval). The sale removes the uncertainty over scale and timing of the previously announced run-off. Although near-term forecasts will be influenced by the speed of VF operating expenses reduction, the sale undoubtedly widens and accelerates STB’s strategic options.

Vehicle Finance turbo-charged exit

Intuitive Investments Group’s final results headline with the significant progress at Hui10 Inc (99%+ of the group’s portfolio). Of the key metrics: a tripling of connected lottery shops to 7,016 from 2,222 last year; registered users to 861.1k in November 2025 from 243.1k in November 2024; lottery transaction value through Lucky World surged to ¥212,630,153 for the 11 months to November 2025, ¥719,663 in the prior year. There are strategic partnerships with China Poly Group and Sinopec Easy Joy, and post period yesterday’s news that UK investment manager Helikon Investments will provide £30m equity funding in staged payments. Net assets increased to £328.04m, though NAV/share saw a slight decrease to 150.3p (from 153.9p). Progressing to paperless lottery operations continues apace, as these results solidly underpin the investment case. Our intrinsic valuation of 1,284p (unchanged following these results) is based on a blended valuation of DCF, FCF and peer review.

FY results show progress on all fronts

A blue-riband day for IIG as it signs an agreement with UK investment manager Helikon Investments to provide £30m equity funding in staged payments. With this, IIG has the cash to finance Hui10’s paperless lottery play roll-out. Sir Nigel Rudd, chair of IIG plc, commented that this gives Hui10 the financial resources to deliver at national scale and is a ‘validation of our strategy to invest in platforms with long-term growth potential’. This trails the 4 December agreement with YSEPay to provide Hui10 with a facility to fully cover Hui10’s expected growth in real-time settlement for the Lucky World platform, which addressed working capital requirements. Our view is unchanged: IIG shareholders have a considerable opportunity from the asset-light, cash-generative Hui10 business. Our intrinsic valuation of 1,284p is based on a blended valuation of DCF, FCF and peer review.

£30m equity investment for Hui10

Lucky World lottery transaction value soared to ¥93.3m in the nine months to September 2025, vs ¥554k last year, while UGO Scratchcard sales surged to ¥7.4m, vs ¥4.0m last year. These are the key points from IIG’s latest trading update, for its FY ended 30 September. To put this rampant growth in context, Chinese annual lottery ticket sales grew +7.6% in 2024. Hui10 is making ‘significant’ progress as it digitises the touchpoints to China’s national lotteries, moving them towards paperless play. The roll-out of Hui10’s technology commenced in July, and since then there has been ‘growth across all key performance metrics’. While there is much to do as policy change edges nearer, the opportunity remains substantial and is now more achievable: the Chinese national lottery is the world’s second largest by revenue, at over US$85bn annually in 2024 from circa 100 million of the 1.1 billion Chinese adults. This market gives Hui10 a dramatic scale-up opportunity to grow revenue, earnings and cash very quickly through digitising the Chinese lottery user experience. IIG shareholders have a considerable opportunity from the asset-light, cash-generative Hui10 business. Our intrinsic valuation is 1,284p (prior 969p), based on a blended valuation methodology of cash (DCF and FCF) and peer review.

IIG trading update: It’s play time

The FCA’s consultation paper on proposed redress is, according to STB, towards the extreme end of outcomes previously expected from the Supreme Court judgment. Based on revised probability weighted outcomes, STB expects to increase motor finance redress commission provisions by ~£16m to a total of £21m, reducing pro forma (Sept 25) CET 1 % ratio by ~0.50 basis points to 12.8%, compared with a 9.6% requirement, reflecting strong capital generation. Our forecasts are unaltered, apart from the additional provision.

Motor finance redress +£16m provision

Secure Trust Bank (STB) announced in July the closure and run-off of its Vehicle Finance (VF) business, which would, through reallocation of capital to the more profitable businesses, enhance overall group profitability. STB has announced today a faster Q3 decrease in the VF loan portfolio than anticipated. This, combined with VF impairments remaining elevated, has resulted in a substantial PBT forecast downgrade for FY25 and more modest downgrades for FY26 and FY27. Management remains confident, however, that STB will deliver c.30% pre-exceptional profit growth in FY25.