MIDAS SHARE TIPS: Bank a profit with OSB Group


Banking can seem like a complex business, filled with complicated financial instruments and rarefied jargon that make little sense to the average investor. 

Andy Golding, chief executive of OSB Group, takes a different approach. A dyed-in-the-wool money man, he left school at 16, took a job at NatWest and has been in the industry ever since. His philosophy is to keep banking simple and the approach has served him well. 

When OSB floated on the stock market in 2014, the shares were £1.70 and the business was valued at just over £400million. Today, the savings and specialist lender group is worth more than £2.25billion and the stock is trading at £5.01. 

Growth: The group was formed in 2011, when Kent Reliance Building Society was rescued by American private equity firm, JC Flowers

The price should continue to increase. Golding has put together a business with lower costs, higher profit margins and stronger customer loyalty than virtually all its peers. A third-quarter trading update last week provided fresh reassurance, with plenty of new business and a confident statement about the future. 

The group was formed in 2011, when Kent Reliance Building Society was rescued by American private equity firm, JC Flowers. Golding was brought in a year later to help turn round a struggling business. 

Since then, OSB has grown organically and through a series of well-timed acquisitions. It now comprises several distinct firms, each designed to appeal to slightly different customers. 

Savers can plump for Charter Savings Bank or Kent Reliance. Charter is targeted at digital-savvy savers. Kent Reliance has a branch network complete with passbooks for those who want them, as well as online services. 

On the borrowing side, OSB offers specialised mortgages via Kent Reliance and two other subsidiaries, Precise Mortgages and Interbay. Customers are primarily professional and semi-professional landlords, with substantial portfolios of flats and houses. 

The group also lends to individual borrowers who find it hard to secure a mortgage on the high street, such as small business owners and the self-employed. 

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Across these diverse businesses, Golding, 52, sticks to three key principles. Most of the group’s funding comes from long-term retail savers, lending is secured against solid property portfolios run by experienced owners and service is paramount. 

The group has a wholly-owned business in India too, which provides most back-office services and a call centre. 

Many UK companies have fallen foul of outsourcing to India but OSB owns its subsidiary in Bangalore outright so training is comprehensive, staff are educated to graduate or masters’ level and customer satisfaction levels are extremely high. 

At the same time, costs are far lower than they would be in the UK, allowing OSB to generate robust profits while offering attractive rates to savers and borrowers. 

Brokers expect full year profits to increase by more than 60 per cent to around £425million, while dividend payments are forecast to rebound from 14.5p to at least 21p. With a strong balance sheet and capital position, Golding may well deliver share buybacks and special dividends next year too.

Midas verdict: OSB is a low-cost, high-service, profitable group that is the envy of its peers. With increased dividends on the agenda, the shares are a buy. There is even a chance of bid activity as small UK banks seem to be attracting plenty of attention these days. 

Traded on: Main market Ticker: OSB Contact: osb.co.uk or 01634 848944  

Bond is a gift for you and charities 

The UK boasts 200,000 individual charities, around 90 per cent of which have no employees and rely solely on voluntary workers. These focus most of their efforts on raising money. Administering that cash is a burden that many feel ill-equipped to bear. 

The Charities Aid Foundation (CAF) helps charities with cost-effective banking and advice. The foundation also works with thousands of philanthropists and companies to maximise the amount that they give, investing donors’ money, making sure tax benefits are used to best effect and ensuring charities are bona fide. 

Tracing its roots back to the 1920s, CAF works with companies across the FTSE100 index and the American 500, handling corporate giving and donations from employees, as well as from some of the biggest philanthropists on both sides of the Atlantic. 

In March 2016, CAF raised £20million through a ten-year charity bond issue, paying 5 per cent annual interest. Midas recommended the securities, which have since become the best-performing charity bonds on the stock market, rising from an issue price of £1 to £1.13 today. 

Now, CAF is back in the market, seeking to raise up to £50million through another ten-year bond priced at £1 but paying 3.5 per cent this time. 

The rate may be lower than five years ago, but it is still considerably higher than most savings rates and CAF’s bonds can be bought and sold freely on the stock market. 

CAF intends to use some of the money to repay the 2016 bond, offering investors £113.50 for every £100 worth of bonds they own. The rest of the cash will be used to help CAF improve systems and technology so it can become even more efficient than it is today. 

Midas verdict: Inflation is not helpful to bonds and, with rates rising, some investors may feel wary of the CAF issue. But, as a charity that helps to make giving easy for big donors, while making sure that charities can distribute funds efficiently, the cause is worth supporting and the bonds attractively priced. 

Traded on: Stock exchange order book for retail bonds Ticker: To be determined Contact: cafonline.org 

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