Interactive Investor

Aldermore IPO is on

22nd September 2014 17:40

Lee Wild from interactive investor

With the Scottish referendum now decided, the expected rush of autumn IPOs is underway. And first to show its hand is "challenger" bank Aldermore with a float which could be worth as much as £900 million.

"Aldermore is a modern, legacy-free bank that challenges the established view on what banking should be," claims chief executive Phillip Monks. "We deliver straightforward products and sector expertise to customers in underserved market segments that offer attractive risk-adjusted returns."

"Now in our sixth year of growth, becoming a public company is the natural next step in Aldermore's evolution and positions us for the next stage of our development through greater access to the capital markets and enhanced profile for our brand."

Aldermore is looking to raise £75 million from the float next month, which will be pumped back into the business. Majority shareholder, private equity firm AnaCap, and some senior management are selling down their stakes, although hedgies Toscafund and Lansdowne Partners will be beefing up their combined holding of 8.3%.

And it's clear why. Aldermore targets four areas: it offers asset finance loans of up to £1 million to small businesses which need money for things like plant and machinery, it lends against outstanding invoices issued by a borrower to customers, and also provide mortgages to both commercial and residential customers.

It used Monday's "intention to float" announcement to flag up half-year results. And why not? Aldermore made a pre-tax profit of £18.6 million in the six months ended 30 June 2014, up 249% on last year.

That works out at a return on equity of 10.4% on an annualised basis, or 11.7% if you strip out IPO costs. By the end of 2017, the ambitious lender is after somewhere near 20%. Total net loans are growing fast, too - up from £3.4 billion to £4 billion split evenly between businesses and homeowners.

At the end of June, Aldermore had a fully loaded Capital Requirements Directive (CRD IV) Common Equity Tier 1 (CET 1) ratio of 10.9% and a total capital ratio of 12.7%.

And Aldermore's "scalable digital platform" is key "in order to continue growing the size of its loan book and deposits whilst managing servicing costs."

And the management team is certainly packed with experience.

Chief executive Phillip Monks spent the 1990s running various parts of Barclays before leaving to head up Gerrard Investment Management. In 2005 he set up Europe Arab Bank. His deputy Mark Stephens has done time at Anglo Irish Bank and Abbey, while chief operating officer Paul Myers is another Barclays man. Finance boss James Mack joined Aldermore from Co-op Financial Services where he was acting CFO.

We await further details regarding pricing and valuation, but Aldermore is in a growth market - according to broker Jefferies, challengers are set to double their share of the mortgage market from 2% to 4% by 2018. And previous bank floats have gone well this summer, too. OneSavings Bank, which floated in June, is up 16% from its 170p float price, and TSB is up 9%. The omens are good for Aldermore.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.