Impressive growth

Aldermore, which only started trading in 2009, is certainly showing impressive growth in its balance sheet. In the six months to 30 June, its loan book grew by 8% to £8.1bn, as new loan originations gained 10% on the same period last year, to £1.6bn. This brings it closer to meeting its targeted growth range of 10%-15% for its year-end loan book.

As a result, profit before tax rose 32% to £78m, while basic earnings per share grew by 45% to 14.9p.

Aldermore also said its loan losses this year would be at the lower end of medium-term guidance of between 25-35 basis points due to benign credit conditions, reflecting the group’s prudent underwriting standards and continued resilience in the UK labour market.

Value play

At its current share price of 228p, Aldermore still trades at just 7.5 times its expected earnings this year, with City analysts projecting bottom-line growth of 21% in 2017. That makes the stock seem to me like an attractive value play, but I also think it’s worth considering some of the limitations of this business.

While it looks set to grow robustly in the near term, its longer-term prospects seem more uncertain. I have doubts about whether Aldermore’s business model can sustain double-digit earnings growth as the economy slows.

I fear its over-reliance on mortgage lending, which currently accounts for more than three-quarters of its loan book, and worry about waning momentum in the UK housing market, which would likely put pressure on earnings growth going forward.

Although I think Aldermore is a well-run bank with a profitable and efficient operating model, I reckon there may be safer growth and income opportunities elsewhere.

Lloyds

Its much bigger rival Lloyds Banking Group (LSE: LLOY) seems to me like a better pick. It has less relative exposure to the more risky buy-to-let mortgage market, and as a mainstream lender, it has a more diversified loan book, which reduces its credit risk.

Having said that, Lloyds’ recent growth has been slower, with underlying profits in the first half up by a less impressive growth rate of 8%, to £4.5bn. The bank also booked another £1bn provision for conduct charges in the second quarter, primarily in respect of PPI.

However, with the PPI deadline looming, it looks set to grow its already strong capital generation. With a common equity tier 1 (CET1) ratio of 14%, Lloyds has a robust balance sheet, which means any surplus capital should lead to growing dividend payouts for shareholders.

Combined with steady earnings growth, City analysts reckon shares in Lloyds are set to yield 5.8% this year, rising to 6.5% in 2018. The bank also trades at a forward P/E of 9.1, as underlying earnings is forecast to grow 8% this year.

The post Better buy: Lloyds Banking Group plc vs Aldermore Group plc appeared first on The Twelfth Magpie.

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Jack Tang has a position in Lloyds Banking Group plc. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Lloyds Banking Group (LSE: LLOY) is no doubt a popular banking share in the UK. In fact, the stock is regularly the most traded stock across the whole market, let alone the banking sector. After years of poor profitability, Lloyds’ prospects are definitely looking up.  

Having said that, Lloyds isn’t the only UK bank that looks to offer investment potential right now. Many of the challenger banks are trading at very attractive valuations. Could these stocks outperform Lloyds in the long run?

Aldermore Group

With a market cap of £770m, Aldermore Group (LSE: ALD) is a much smaller outfit than Lloyds. However, smaller companies can provide excellent growth opportunities and this is a bank that is growing at an impressive rate.

Over the last two years, revenue and net profit at the challenger bank have surged from £175m and £38m, to £278 and £94m, and City analysts expect growth of 10% and 9% respectively this year. Earnings per share of 29.4p are forecast for FY2017, placing the bank on a forward looking P/E ratio of just 7.6. By contrast, Lloyds trades on a forward looking P/E ratio of 9.2.

Aldermore is expected to pay a maiden dividend this year, with analysts pencilling in a payout of 3.75p per share at present. That equates to a yield of 1.7%, which is lower than Lloyds’ yield however, the payout is forecast to grow significantly in coming years.

In its full-year results in March, Aldermore stated that Britain’s exit from the EU was unlikely to have “any material impact” and that the loan book should grow between 10%-15% this year. It went on to say that it expects to deliver a return on equity in the high teens over the medium term. An update in May stated: “Aldermore has made an excellent start to the year, with continued strong progress on our strategic priorities and financial performance ahead of our expectations.”

The next update from the bank is interim results on 10 August. This is one to watch closely in my opinion.

Virgin Money Holdings

Also offering value in the challenger bank space is Virgin Money Holdings (LSE: VM), provider of residential mortgages, savings, credit cards and currency products.

Like Aldermore, Virgin Money has recorded impressive growth in recent years with revenue and net profit surging 13% and 26% respectively last year. City analysts have forecast growth of 12% and 13% for FY2017.

The £1.35bn market cap bank released its interim results this morning and while underlying profit before tax surged 26% to £128.6m, the market wasn’t impressed with the bank’s net income margin of 1.59% and slightly lower net interest margin guidance for the full year. As I write, the shares are down 7%.

However, the challenger bank did enjoy a 7% rise in customer loan balances and a decrease in the cost-to-income ratio to 53.9% from 58.8% last year. Impressively, the interim dividend was boosted a significant 19% to 1.9p. Chief executive Jayne-Anne Gadhia stated: “We will continue to drive growth, quality and returns, put customers at the heart of everything we do, and we remain on track to sustain a solid double-digit return on tangible equity (RoTE) in 2017.”

After the 7% fall today, Virgin Money Holdings now trades on a forward looking P/E ratio of just eight. For patient long-term investors, I believe the fall could be a good opportunity to buy the shares at an attractive valuation.

The post Are these banks better long-term buys than Lloyds Banking Group plc? appeared first on The Twelfth Magpie.

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Edward Sheldon owns shares in Aldermore Group. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Strong order backlog

Shares in oil services company Petrofac (LSE: PFC) seem too cheap to ignore, with a forward P/E of 9.4 and a dividend yield of 6.2%.

Unlike many in the sector, Petrofac is attractively positioned due to its heavy exposure to the Middle East, where the relatively low costs of production in the region have shielded the company from savage cuts to capital spending in the oil & gas industry. What’s more, the company has adapted to lower energy prices by scaling back its Integrated Energy Services (IES) operations, which has helped to reduce its exposures to production risks.

As you might have guessed, Petrofac’s transformation isn’t without its difficulties. The company has made a number of writedowns and impairments, which resulted in it declaring a net loss of $349m in 2016. However, with cash flow from operations improving and steady revenue from new projects, Petrofac is delivering a strong operational performance across all its businesses and net debt is falling.

Additionally, Petrofac’s order backlog, which stands at $14.3bn (roughly double last year’s revenues), remains one of the most robust in the industry and gives it excellent revenue visibility over the next few years.

Overly cautious?

Housebuilder Redrow (LSE: RDW) may not be as well known as its larger rivals, but the company has been one of the most resilient in the sector since the Brexit vote last June. Shares in Redrow are currently trading near a post-recession high of 499p a share but they still seem undervalued.

Redrow is seeing business boom, thanks to a resilient residential property market in the South East and an increase in legal completions. In the six months to 31 December 2016, earnings per share (EPS) surged 35% to 31p a share. But City analysts expect earnings for the full-year to climb just 14% this year. This indicates that the market may be overly cautious on the stock, which opens up the possibility of earnings revisions over the next six months.

But even on those current estimates Redrow seems cheap, with shares trading at a forward P/E of just 7.5, which compares favourably to the sector average of 9.2.

First dividend payment?

Meanwhile, challenger bank Aldermore (LSE: ALD) seems poised to make its first dividend payment this year. The specialist mortgage and small business lender generated capital organically for the first time, and it has more capital than it needs to fund its growing loan book.

Looking ahead, Aldermore sees good tailwinds, with the bank expecting regulatory change to benefit smaller lenders and steady growth in buy-to-let lending. City analysts currently forecast its bottom line to have increased by 12% in 2016, with further growth of 11% expected for this year.

This gives it a forward P/E of just 8.2, which seems to offer excellent value for money for a stock which is soon to start making dividend payments. As such, I consider Aldermore a worthy buy at today’s price of 230p a share.

The post 3 bargain shares I’d buy in March appeared first on The Twelfth Magpie.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Petrofac. The Motley Fool UK has recommended Redrow. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Royal Dutch Shell

Shell (LSE: RDSB) is a great example of a stock in which investors would have been better off not checking the share price in recent years and instead, just pocketing and reinvesting the sizeable dividends that the oil giant has paid out.

This time last year, with the oil price hovering around the $30 mark, Shell’s share price had fallen to an incredibly low 1,300p, a near 50% drop in just 18 months. Financial news headlines at the time were full of ‘doomsday’ scenarios for the oil sector and there’s no doubt that many investors panicked and sold out of the stock.

Fast-forward to today and not only is the oil price showing signs of life, but shares in Shell have bounced by 80% to now trade at 2,350p. By simply doing nothing while the share price was falling, investors would have pocketed a huge dividend that could have been reinvested back into the market, taking advantage of lower prices.  

I didn’t sell Shell when the share price was plummeting over the last 18 months, and with the company remaining committed to the dividend, I have no intention of selling the oil giant in 2017 either.

Diageo

Another stock I don’t plan to sell this year is Diageo (LSE: DGE). I love the fact that consumers buy Diageo’s brands such as Johnnie Walker and Smirnoff during both the good times and the bad, and for this reason, I plan to take a leaf out of Warren Buffett’s book and keep Diageo in my portfolio “forever”.

Another attraction of Diageo is the company’s significant emerging markets exposure, and I believe that the growing incomes and aspirational nature of consumers in these regions will drive revenue growth over the long term.

Diageo pays a nice little dividend of just under 3% at the current share price, and the dividend has grown at an annualised clip of 8% over the last five years. I reckon the ‘sin’ stock has fantastic potential for both long-term capital and dividend growth and as such, I’ll be holding Diageo for a while yet.

Aldermore Group

Lastly, at the smaller end of the scale in my portfolio is £800m market cap Aldermore Group (LSE: ALD).

The challenger bank is another example of a stock that has seen its share price fluctuate wildly in the last 12 months, being beaten down disproportionately in the Brexit panic to the 100p level. However I didn’t sell my holding during the panic, and that’s now looking like a wise move as the share price has since recovered to 235p.

With the stock trading on a forward P/E ratio of just nine, I believe there’s further room to run for both Aldermore and many of the other challenger banks and as such I don’t plan to sell my holding any time soon.

The post 3 stocks I won’t be selling in 2017 appeared first on The Twelfth Magpie.

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Edward Sheldon owns shares in Royal Dutch Shell B, Diageo and Aldermore Group. The Motley Fool UK has recommended Diageo and Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Very cheap growth?

OneSavings Bank (LSE: OSB) is one of them, and its share price was hammered along with the rest of the sector immediately after the referendum. But it’s quickly recovered, and at 322p today is only a few pence below its pre-vote level — and if you managed to get in at the bottom on 27 June you’d be sitting on a very nice 83% profit today.

The bank targets specialist markets that it believes offer attractive risk-adjusted returns, and that includes a range of offerings to the private buy-to-let market, commercial mortgages, and bespoke residential lending, among other services.

A Q3 update on 2 November also revealed underlying 13% growth in the bank’s loan book for the first nine months of the year, with net loans and advances growing by £466m to £5.6bn, so there certainly seems to be demand in those sectors.

Chief executive Andy Golding said “application levels for the second half to date are significantly in excess of the first half and our pipeline of new business is at a record level.” And he added: “We remain confident of achieving our net loan book growth target for this year and double-digit growth into 2017.“

Based on that, do you expect to see a share on a premium growth valuation? Not a bit of it here. Despite a 14% EPS growth forecast for the full year, OneSavings Bank shares are on a lowly forward P/E of only eight. And that’s with dividend yields of around 3.5% already on the cards despite the bank’s existence as a listed company only starting in June 2014.

OneSavings Bank looks like an attractive growth opportunity to me.

An even newer comer

Shares in Aldermore Group (LSE: ALD) have ploughed a similar furrow, plunging in the wake of the Brexit vote but going on to recover most of the loss — at 204.5p today, the price is down less then 3% since 23 June and is up 91% since its low on 6 July.

Aldermore, which mainly provides financial services to small and medium-sized businesses but is also in the residential mortgage market, reported a healthy first nine months of the year just a week ago. Net loans rose by 15% to £7.1bn by 30 September with a 20% growth in new lending to £2.3bn — and of that, new business lending was up by 13% with mortgage lending up 24%.

And though the referendum result is seen as likely to hurt the banking sector in general, chief executive Phillip Monks told us that Aldermore has “seen no changes in customer demand” while enthusing about “another strong quarter.“

Once again, we’re looking at a share valuation that I see as very cheap compared to its growth prospects — a 12% forecast EPS rise this year would put the shares on a P/E of under eight and with a PEG ratio of 0.7. And though there’s no dividend expected this year — Aldermore has only been listed since March 2015 — a maiden dividend of 2% is on the cards for 2017.

Seekers of Brexit bargains should definitely be looking among the smaller banks, where I reckon there are some great bargains to be had.

The post 2 rising bank shares you can’t afford to miss? appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

BAE Systems

Trump’s pledge to increase US defence spending and to stop “subsidising” NATO, could potentially provide material upside to the European defence sector, and it doesn’t surprise me that shares in BAE Systems have risen around 10% since Trump’s election win.

But at a share price of 600p and a P/E ratio of 20 times FY2015 earnings, is the stock now fully valued?

Several brokers believe there’s more to come from BAE Systems with analysts at Société Générale, JP Morgan and Goldman Sachs setting price targets of 650p, 675p and 697p respectively for the defence giant. And with earnings forecast to grow from 30p in FY2015 to 40p for FY2016, BAE Systems’ forward-looking P/E ratio of 15 times earnings isn’t overly demanding. The company has traded at more expensive multiples than this in recent periods in which US defence spending was set to increase, suggesting that the stock’s upward momentum could continue.

On the other hand, one indicator suggesting the stock is no longer cheap is the company’s dividend yield. With BAE Systems paying dividends of 21p per share last year and analysts not expecting the payout to rise this year, the company’s current and forecast dividend yield is now only 3.5%. Given the fact there’s been plenty of opportunities to buy the stock with a yield of between 4%-4.5% in recent years, the current yield looks a little underwhelming in my opinion.

However with sentiment towards the defence sector improving on the back of Trump’s victory, I’m cautiously optimistic that BAE Systems’ share price has further to run.

Aldermore Group

One company in which I’m confident that it’s not too late to buy is challenger bank Aldermore Group.

Aldermore released an upbeat trading statement for the first nine months of 2016 last week, and reported a net loans increase of 15% to £7.1bn, with a 24% increase in new lending to mortgage customers. The fast-growing challenger bank noted that its net interest margin was stable in the quarter, and also reported a CET1 capital position of 11.5%, beating many analyst’s expectations. Management stated that it had seen no changes in customer demand for loans and that its pipeline remained “strong.”

The combination of the positive trading statement and an improvement in sentiment across the financial sector since Trump’s win has seen Aldermore shares climb around 10% in the last week, and the stock is now up almost 100% from its post-Brexit low of 102p. While this is no doubt a strong performance in just over four months, I believe Aldermore is still trading too cheaply, with the bank’s forward looking P/E ratio a low 8.

Clearly there’s still plenty of Brexit uncertainty surrounding the UK financial sector right now, however in my opinion, the market is discounting the prospects of the challenger banks too heavily.

The post After surging higher due to Donald Trump, is it too late to buy these stocks? appeared first on The Twelfth Magpie.

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Edward Sheldon owns shares in BAE Systems and Aldermore Group. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Housebuilding and construction

At today’s 1,030p or so, housebuilder and construction company Galliford Try’s (LSE: GFRD) shares are well down from the 1,800p they achieved during 2015. Yet the company remains upbeat. 

In a trading statement released on 12 July, Peter Truscott, the firm’s chief executive, reassured us that despite forward uncertainty due to the Brexit vote, underlying demand for new homes continues. He reckons ongoing availability of mortgage finance and the government’s Help-to-Buy scheme make him confident about the outlook for the company’s housing-related activities. 

Meanwhile, he says, the late-cycle nature of the construction sector and the firm’s public sector focus should help maintain momentum, and the company’s order book is already 82% full for 2017. 

Galliford Try certainly looks tempting with a forward price-to-earnings (P/E) ratio of  6.7 for year to June 2017 and a forward dividend yield running at  9.7%. Such metrics suggest the market expects trouble ahead. At some point, the firm’s trading cycle will turn down, but the big question is, when will that be? Perhaps the valuation markdown is overdone for the time being?

Engineering

Engineering firm GKN (LSE: GKN) designs and manufactures drive shafts and axle joints for vehicles around the world. The firm also operates businesses in aerospace, powder metallurgy and agricultural machinery. The shares touched 413p during 2014 but now sit around 308p. However, the directors seem bullish and City analysts following the firm expect earnings to grow by 11% during 2017.

The forward P/E rating is around 10 for 2017 and the dividend yield sits at 3.1% with forward earnings covering the payout more than three times. It’s worth keeping an eye on the firm’s debt, though. The last reported level of net debt was £918m, which compares to projected pre-tax profits of £685m for 2017. However, a pension deficit around £2bn could combine with borrowings to cause problems if profits dive in any macroeconomic downturn that could be ahead.

Banking

UK-focused challenger bank Aldermore Group (LSE: ALD) saw its shares touch 316p in July 2015. Is today’s 135p or so a bargain? Possibly, but it depends on where the macro-economy is going, because even though Aldermore is a racy challenger bank, it’s still a bank and as such is one of the most cyclical firms listed on the stock market. 

City analysts expect the firm’s earnings to flatline during 2017, and the directors acknowledge that the impact of Brexit remains unknown, despite being bullish about Aldermore’s prospects in the longer term. The shares could look attractive to you if you think the valuation derating is sufficient to counter any cyclical shock on the horizon, or if you believe the firm’s underlying growth and market share grab can override any cyclical slowdown. The forward P/E ratio sits at 5.5 for 2017 and City analysts expect a forward dividend yield of 3.1% with the payout covered almost six times by forward earnings.

The post Are these 3 shares too good to miss? appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any shares mentioned. The Motley Fool UK owns shares of GKN. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Lloyds Banking Group (LSE: LLOY), Royal Bank of Scotland Group (LSE: RBS) and Aldermore Group (LSE: ALD) have all seen their share prices slashed post-Brexit and investors might be wondering if now is a good time to buy these banks.

But there are some important issues affecting these three companies that investors should be aware of.

UK exposure

It’s a commonly accepted view that after voting to leave Europe, the UK is likely to struggle economically in the short term. UK GDP growth forecasts have been cut and it’s possible we could see a property market slowdown or recession.

While it’s hard to accurately predict the extent of the Brexit consequences, investors should be aware that any economic downturn will have ramifications for UK banks. That’s because banks are cyclical businesses – they perform well during prosperous times and struggle during downturns.

This explains the sudden shift in sentiment towards Lloyds, RBS and Aldermore as the UK is the main operating market for all three banks. UK income makes up 100% of group income at both Lloyds and Aldermore and 88% of group income at RBS. This is in contrast to Barclays (48%) and HSBC (25%), which have more diversified global operations. 

Broker downgrades

Another thing to be aware of is that many analysts have been quick to downgrade the UK-focused banks after the referendum and some of the downgrades have been brutal.

For example, Citi has slashed earnings estimates at Lloyds by 7% for 2017 and 20% for 2018 and has downgraded the bank from neutral with a 73p price target to sell with a 52p price target. Similarly, analysts at Jefferies have cut their price target for Lloyds from 108p to 68p, while Bernstein’s price target for the bank is a low 40p. Société Générale still rates Lloyds a buy but has stated that dividends could be affected as the bank may face higher impairments in the wake of Brexit.

It’s a similar story for RBS, with several sell-side analysts cutting their price targets for the bank in the last week. And challenger bank Aldermore hasn’t escaped the carnage with Citi reducing its price target from 210p to 140p stating that slower loan growth, a deterioration in asset quality and lower margins will affect profitability at the bank.  

Trading cheaply

Investors must now ask themselves whether the risks are priced-in to the share prices of Lloyds, RBS and Aldermore after the sell-off. All three companies appear to be trading cheaply: Lloyds is now trading on a P/E ratio of 7.3 times next year’s earnings with a forecast dividend yield of over 7%, while RBS and Aldermore have forecast P/E ratios of 12.5 and 4.8, respectively. Having said that, I believe it’s likely to be a bumpy ride for UK banks over the next few years, so risk-averse investors should proceed with caution. 

The post Don’t buy Lloyds Banking Group plc, Royal Bank of Scotland Group plc and Aldermore Group plc until you’ve read this appeared first on The Twelfth Magpie.

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Edward Sheldon owns shares in Aldermore Group. The Motley Fool UK has recommended Barclays and HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Over the past five days, OneSavings has seen its share price fall by 12%. Shawbrook’s shares fell 13.5%. Virgin Money’s shares have tumbled 14.3% and Aldermore has suffered a decline of 21%. 

Tax surcharge

George Osborne’s new tax surcharge will amount to 8% of profits and will affect 150 lenders around the country. Designed to replace the bank levy, which is paid by only 30 lenders, the tax surcharge will see the corporate tax rate of all banks jump to 28% next year, falling to 26% by 2020. 

It’s pretty clear that this tax hike will hit the growth rate of the challenger banks. Although, according to my figures, being forced to pay an extra 8% corporate tax surcharge will hardly cripple the industry. 

For example, for full-year 2014 OneSavings reported a pre-tax profit of £61.7m and an after-tax profit of £51.5m. Based on these numbers the company paid tax of £10.2m, a tax rate of 16.5%. Paying a corporate tax rate of 28%, including the bank surcharge would cost the group an additional £7.2m per annum, or approximately 3p per share.

City analysts were expecting OneSavings to report earnings per share of 37.2p for 2016. After factoring in the extra tax paid this figure falls to 34.2p. On this basis, the company is trading at a lowly 2016 P/E of 8.2.

Based on these figures then, a higher tax rate is not going to slow down the growth of the challenger banks.

Rapid growth

City analysts have yet to adjust growth figures to factor in the higher rate of corporate tax. So, we’ll have to wait and see how the tax surcharge affects analysts’ growth projections for these challenger banks.

But at present, Aldermore’s earnings are expected to expand by 49% this year. Virgin Money’s earnings are set to grow 6% this year and a further 52% during 2016. Shawbrook’s earnings are set to double by the end of 2016 and OneSavings is expected to report earnings growth of around 30% by 2016, that’s including the additional tax adjustment. 

Cooling the market

Unfortunately, as well as announcing the tax surcharge, George Osbourne also announced measures yesterday to cool the growth of the buy-to-let market. Specifically, the Chancellor announced a crackdown on mortgage interest tax relief. 

OneSavings sells itself as a mortgage bank, specialising in buy-to-let mortgages. There was some concern that the group’s growth would be held back by this new move by the government.

However, soon after the changes were announced, OneSavings moved to reassure the market, putting out a statement that ended with the following comments from CEO, Andy Golding:

“The sheer demand and demographic growth prospects for private rented property are likely to keep the market growing despite these small changes to the tax regime.”

The bottom line

Overall, the new surcharge on bank profits will hit Shawbrook, OneSavings, Aldermore and Virgin Money. Nevertheless, the demand for these banks’ services remains high, and the higher tax rate won’t hold back growth for long. 

The post Why The Budget Was Bad News For OneSavings Bank PLC, Shawbrook Group PLC, Virgin Money Holdings (UK) PLC And Aldermore Group PLC appeared first on The Twelfth Magpie.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Looking ahead, further strong performance could be on the cards. That’s at least partly because Aldermore is operating amidst excellent trading conditions that are allowing it to increase the size of its loan book and grow its customer numbers and profitability. And, with the UK economy moving from strength to strength and being one of the fastest growing economies in the developed world, the outlook for Aldermore looks to be very bright.

For example, Aldermore is expected to increase its bottom line by 49% in the current year, followed by growth of 31% next year. That’s an astounding rate of growth and means that the bank’s net profit could be as much as 95% higher next year than it was last year. Furthermore, Aldermore still offers a very wide margin of safety, with the stock trading on a price to earnings growth (PEG) ratio of just 0.3, which indicates that even if its guidance is downgraded, its shares should still perform well moving forward.

Another Option

Of course, Aldermore is not the only financial services company with a bright future. Standard Life (LSE: SL), for example, is expected to increase its earnings by 65% this year, followed by further growth of 19% next year. And, despite seeing its share price double in the last five years, Standard Life still trades on a PEG ratio of just 0.8 and this shows that its valuation is hugely appealing at the present time.

Furthermore, Standard Life also offers stunning income prospects. As well as yielding 4.1% at the present time, it is expected to increase dividends per share by 7.5% next year and, with it having an excellent track record of dividend growth (they have risen at an annualised rate of 8.2% during the last five years), it looks set to be a super stock for income-seeking investors moving forward.

Santander

Clearly, investor sentiment in Santander (LSE: BNC) (NYSE: SAN.US) has been rather weak in recent months, with the global banking giant seeing its share price slump by 26% in the last year. And, while the improving global economy is good news for the highly diversified bank and it does offer upward rerating potential as a result of its price to earnings (P/E) ratio of 11, its growth potential is far lower than that of either Aldermore or Standard Life. As such, those two companies seem to have a more obvious positive catalyst to push their share prices higher.

Certainly, Santander offers greater stability, with its recent placing beefing up its capitalisation ratios and its regional diversity providing a very robust and consistent future outlook. However, when it comes to capital gain prospects, Aldermore and Standard Life seem to be the preferred options.

The post Why I’d Buy Aldermore Group PLC And Standard Life Plc Before Banco Santander SA appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Standard Life. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.