TSB float?

Glen_Clark

The Co op was going to pay the equivalent of £1.50 per share
The float price is between £2.20 and £2.90
Why has the price increased so much?

Northern_Light01

Glen_Clark wrote: »

The Co op was going to pay the equivalent of £1.50 per share
The float price is between £2.20 and £2.90
Why has the price increased so much?

I think that it would be a proper scandal if the institutions were able to snap up these shares at around half of book value.


After the media had a field day accusing the government of selling Royal Mail on the dirt cheap, there is no way they could afford to have more of the same with TSB.

FinancialController

Ultimately this is a spun off high street bank with none of the real upside.

The shares are priced at a slight discount but not much. The proportion of interest only mortgages on their books are way higher than other banks.

When interest rates rise over the next few years this will manifest itself in greater bad debt.

I'd avoid, as without dividends this offers nothing except more risk than it ought to.

Northern_Light01

Scarpacci wrote: »

Personally I have decided against partaking in the TSB IPO. I'm really a dividend investor, so no dividend for three years is a red flag to me. A share would have to be very attractive to ignore one of my main goals, as it were, and I just don't think TSB is. I have been on the look out for a UK-focused bank but I'm just not sold on this.

The clean slate is appealing and the bank could well grow its current accounts and (eventually) mortgage intermediary business, but right now it's got an unappealing mortgage portfolio (high on interest only mortgages) and it's not very profitable. As a small UK bank it has potential, but the market place is fairly hostile for new/smaller banks. There's a lot of hope attached to them being able to make the most of their relatively expensive branch network, but most of the country seem extremely averse to switching their bank accounts.

There's no denying there's incentive for Lloyds to see the IPO go well, as they unload the rest of TSB, and TSB does have advantages new entrants usually wouldn't with Lloyds infrastructure. Still, pricing at below book value might be necessary just for the negatives I've mentioned, not representing a "bargain" as it were.

For what it's worth, Barclays trades below book right now as it tries to transform itself into a more focused, somewhat more mundane/retail bank. I don't know whether I'd be investing in BARC either, but I think I would place them above TSB.

A quick check reveals that Barclays shares are trading at 0.61 to book value.


But I note that TSB's parent company (they will still be the majority shareholder for the time being) are trading at a ratio of 1.44.


As Lloyds are planning to resume dividend payments at some point in the not too distant future, I think that it would be a bit of a reach for TSB to achieve the same kind of performance. But I have no reason to think that the discount to book value will not be wiped out once unconditional trading begins.

Northern_Light01

FinancialController wrote: »

Ultimately this is a spun off high street bank with none of the real upside.

The shares are priced at a slight discount but not much. The proportion of interest only mortgages on their books are way higher than other banks.

When interest rates rise over the next few years this will manifest itself in greater bad debt.

I'd avoid, as without dividends this offers nothing except more risk than it ought to.

They're shares, so of course they're always going to carry an element of risk!


Like I said, there was no way that these were going to be sold at a massive discount because of Royal Mail.


But I thought that the chance of buying a poundsworth of assets for 75-80p was not too bad a deal. Much better than other more recent IPOs.

blinko

I cant see where the growth is going to come from, what does TSB have that the other banks can provide....?? no dividends for a while and lloyds has a ton of shares to off load at some point.

although on the plus side there seems to be a good special offer if you hold for 1 year of 1 free share for every 20 you hold

bowlhead99

Northern_Light01 wrote: »

...the TSB offer does offer the small investor a chance of a noticeable gain, even it it is not expected to be spectacular. So while it isn't exactly the next Royal Mail, it has to be seen as the next best thing.

Over the year or more that you intend to hold these (you mentioned you would have preferred to get a few free shares a year, so presumably you plan to hold for multiple years), you have a chance of a noticeable gain, yes, but also a noticeable loss. Are you sure that investing in the shares of a single bank is 'the next best thing' to the almost certain quick gain on Royal Mail? Over the course of the next few years you could easily lose half your money or perhaps make half your money again.

As Scarpacci mentions, there are plenty of other opportunities in the banking sector, whether currently listed or also in the pipeline to IPO. According to the FT, Aldermore may come to market soon too, and is a growth story without legacy issues, rather than just a bunch of old branches that Lloyds are dumping. It doesn't even have branches, which is fine because individuals and businesses don't generally use branches these days.

If you look beyond banking, it strikes me that there are tens of thousands of listed companies on the planet and tens of thousands of unlisted companies. The market capital of the world's equity markets is $50 trillion, while TSB will have a share capital of around $2 billion. So your £750 or whatever is only giving you a participation in at most a 250th of a percent of the listed equity capital that's out there. And to keep the maths simple I've ignored corporate bonds, gilts and commodities etc.

There an almost infinite combination of ways to construct an investment portfolio. So, it would be quite easy to name a thousand combinations of shares or funds that could be held as a portfolio which would also have significant upside potential, and yet an overall lower risk than putting £1000 into TSB,

The free share offer is a bit lost on me though. Having to wait a year for somewhere in the region of 350-400p (not even 1% of my initial outlay) seems a little bit of an insult. If they offered a couple every year till they pay a dividend then it might have proved more popular with small investors. But it's better than nowt, I suppose.

I suppose the gains or losses on the £750 you invest are not going to give you a life changing result - it won't leave you with a lottery-winning lifestyle nor destitute if you lose it all.

Still, I truly believe you shouldn't invest cash into a company you don't understand on some whim that "Royal Mail has been and gone but this is the next best thing to that free money", without reading and understanding the prospectus. Few of us are qualified to critically evaluate a bank's financial position and decide if the valuation is fair and the prospects sound, but we can at least skip to page 255 of the prospectus (pg 263 of the pdf file) to read the summary of the offer and learn about the bonus shares.

If you buy shares at IPO, and hold them continuously for a year through the same intermediary, you get 1 free share for every 20 you bought (up to £2000's worth, so the max "day 1" value of the free shares is £100, unknown what this will be worth in a year).

I have no idea where you are getting "somewhere in the region of 350-400p (not even 1% of my initial outlay)" from. Unless you fundamentally misunderstand the bonus offer and think it is one free share per investor not one free share per 20 shares up to £2k worth? And you perhaps thought the 220-290p per share start price would go up by 60% in only a year so your 220p free share would be worth 350p?

Those misunderstandings would suggest to me that you should not be investing if the £750 is at all important to you.

Like I said, there was no way that these were going to be sold at a massive discount because of Royal Mail.

Forget Royal Mail. This is nothing like Royal Mail and nothing to do with Royal Mail. It is not your best chance since Royal Mail to get 60% overnight.

What you could perhaps say is "there was no way that these were going to be sold at a massive discount because Lloyds Bank are a publicly traded company and their shareholders would have a fit if the assets were given away for less than what they consider to be a fair value in the circumstances".

But I thought that the chance of buying a poundsworth of assets for 75-80p was not too bad a deal. Much better than other more recent IPOs.

Can you name some recent banking IPOs with which you are familiar?

Assessments of company market value against other measures (like book assets or annual profits or cashflows or other financial indicators like EBITDA or whatever), are completely different in different industries. You don't value a bank like you value a Saga or a Just Eat or a Facebook or a Royal Mail.

As you mentioned, you could buy Barclays at 0.61 times its assets. If investment decisions can be made just by looking at what multiple of assets a company is priced at and buying something that looks like it's "not too bad of a deal" when comparing market share value to asset value, then it seems you are misplacing your £750 by putting it into TSB to "buy a poundsworth of assets for 75-80p" when you could put it into Barclays to "buy a poundsworth of assets for 61p".

On that simplistic measure which does not tell the whole story, you are overpaying by 25-30%, no? Unless of course there is a reason for the different companies trading at different ratios, which there often is. In which case, simply looking at the ratio does not tell you that you've got a good deal and the numbers on the back of your envelope should not be screaming at you "This is clearly a bargain, you are getting great assets for cheap". You must admit you don't know whether it is a bargain or not. You are just having a punt. And I would respectfully suggest it's not even an educated punt, if you don't follow the offer terms or understand the dynamics of bank valuations.

I don't mean to patronise, as most of us don't understand the dynamics of bank valuations either (and that probably goes for half the sector analysts and brokers too). But there is a lot to get your head around to satisfy yourself if something is a good deal or not. Unless you can satisfy yourself that the IPO is a great deal compared to other opportunities in the world of shares and funds, there is no argument to buy more of TSB than you do of anything else.

PeacefulWaters

I'm in. They'll be boring though.

I've sold some LBG shares to fund it, so my sector exposure remains the same.

TSB doesn't carry the legacy liabilities of LBG or other UK banks. It should be able to grow organically in the "close to ethical" space, thus exploiting a gap created by Co-op's failings. It has a branch reach significantly greater than Metro Bank and most building societies and IT back up that is significantly better than RBS/Nat West. It's loan book is funded entirely by its depositors too.

It is restricted to the UK, reliant on LBG for that IT, heavily weighted towards the housing market and has a chunk of its mortgages tied into an unprofitable base rate tracking SVR. But as the latter runs off the opportunity for profit growth increases.

Glen_Clark wrote: »

The Co op was going to pay the equivalent of £1.50 per share
The float price is between £2.20 and £2.90
Why has the price increased so much?

LBG shares increased in price since Co-op backed out.

wannaberichbtch

I'm in also, I don't think Lloyds can afford to make a pigs ear of this as they need to offload 75% next year and who will buy if initial investors very publicly lose money? I don't see the high level of IO mortgages as particularly negative either, these are secured loans that can be collected on default, death or property sale. I also think the TSB current account is a very good product in the current climate and will deliver the increase in the current account market they wish to exploit.

vectistim

Hour and a half to go, I've gone for the de facto maximum of £2,000 - everyone else?