A) The whole is valued significantly less than the parts.
B) The parts whilst not undervalued look to be able to grow for the foreseeable future.
C) There is no good reason for the whole to be significantly less than the parts
D) Over time the valuation gap will close.
There are 3 moving parts to ARBB
1 - A 51.9% holding in Secure Trust Bank. the time of writing STB has a market Cap of £528.6m. The bank is successful and growing. ARBB’s holding is worth £274.3m
2 - A 100% holding in Arbuthnott Latham (AL) a Private Bank. AL is growing and looks to be able for the current financial year to make in excess of £7m. We do not see it as unreasonable to expect this growth to continue
3 – Head Office. This costs £8m a year. Costs seem to be high but in control. They have come down but not through cost reduction so much as through reallocation to the two operating units.
So we have a holding worth circa £274m and a Private Bank and Head Office that come close to netting off, and going forward can be reasonably expected to do so. But ARBB is currently only valued at £219.3m. Representing a circa 25% discount to assets.
Now AL does not yet cover Head Office costs so there could be some differential for that. And ARBB is controlled by Henry Angst its Chairman and CEO with 53.7% of the shares but this means he also controls STB so there should be no differential for this.
Put simply we see ARBB as being currently undervalued and that this differential to assets has decreased in the past and can be expected to do so again.