Investors who are risk-averse and prefer to avoid small-cap stocks may want to stop reading here, but for those with a nose for value and an appetite for contrarianism we think there is a lot to like about specialist lender Secure Trust Bank (STB).

To say the stock is unloved is an understatement, as one look at the share price performance over the last five years demonstrates.

Secure Trust Bank provides retail finance and vehicle finance for consumers as well as property and commercial finance.

Its retail finance arm arranges and administers finance and loans for well-known national brands and retail partners across the UK, helping shoppers buy the things they want.

In the first half of this year, the bank grew its retail loan book by 12% with new business volumes of £614 million and increased its market share to 12.9% from 11.4% six months earlier.

In vehicle finance its V12 ‘product hub’ allows dealers to buy, sell and finance used vehicles, while its Moneyway finance arm has hundreds of thousands of happy customers across the UK.

Net lending increased by 18% with new business volumes of £250 million in the first half as the used car market soared and the bank grew its dealer and broker relationships.

The real estate finance business offers loans to experienced developers of residential and commercial schemes as well as professional landlords, and grew its net lending balance by 10% with new business volumes of £250 million in the first half, while commercial lending was flat as the bank made a strategic shift towards lower-yielding but lower-risk financing.

On the whole, therefore, the bank increased its loan book in three of four of its large addressable markets while staying disciplined in terms of risk, and reported a net interest margin of 5.4%, which the high-street giants would kill for given they are expecting to report an average margin of just over 3% this year.

Even though it took an impairment charge of £7.2 million for non-recoverable loans in the first half, which management says is unique and relates to a long-standing commercial debt, pre-tax profit of £16.5 million was almost flat implying underlying earnings grew by 15%.

With no write-offs in the second half, profits are expected to increase ‘significantly’ thanks to loan book growth and a low cost-to-income ratio.

So why does STB trade on 0.4 times 2023 book value, 3.6 times earnings and a dividend yield of 7.5% with the dividend four times covered?

‘The market is valuing the shares as though the company has serious balance sheet issues, which we do not agree with’, says Shore Capital. We can only concur.

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