1H’26: accelerating franchise growth

ABG’s results may be considered across two, distinct, time dimensions. The long-term value, created by franchise growth, picked up in 1H’26. Key growth was well spread and seen in deposits, specialist lending and wealth management. The “Future State” target of £10bn client balances was achieved two years early, and the customer base is growing. Short term, there remains sensitivity to the interest rate environment (avg. base rates down 73bp 1H’26 vs. 1H’25). A higher-for-longer outlook post Iran conflict would be positive for 2H’26/2027 and, if sustained, could see FY’26 forecasts raised. The ca.2x covered div. yield is ca.7%.

• Key financials: i) PBT £11.0m (1H’25: £10.9m); ii) op income £88.2m (£84.9m), with growth in both banking and leasing divisions; iii) operating expenses +4%; iv) EPS 49.9p (42.5p); v) interim dividend +2p to 24p; vi) NAV p/sh 1,712p (1,649p); and vii) CET1 ratio 12.0% (12.7%).
• Key operating metrices: i) deposits £4.8bn, +8% YoY; ii) customer loans £2.45bn +6% YoY (specialist lending breaking £1bn, with all divisions close to, or exceeding, our previous FY estimates); and iii) FUMA +26% to £3bn for the first time. Strong gross inflows (25% opening FUMA, 14% net).
• Valuation: Our broad range of valuations is: £9.89 DDM, £17.20 SOTP and £24.60 GGM. The average is £17.23, nearly double the share price. Trading at 49% of NAV is anomalous, in our view, given returns above the cost of capital and ABG’s growth potential. ABG’s 2027E yield is 7.3% with 1.9x cover.
• Risks: Margins are falling, with the trend and level of interest rates a key driver to future earnings. A higher-for-longer outlook would be beneficial. Credit is a risk, but ABG is conservative in lending and takes good security; thus, its loss given default is low. Other risks are reputation, regulation and compliance.
• Investment summary: ABG offers strong, accelerating, franchise growth building future embedded profits. Its balance sheet strength gives it options, especially in uncertain times. Management has been innovative but also very conservative in managing risk. A profitable, well-funded, well-capitalised and strongly growing bank priced below well book value is an anomaly, in our view.