Peel Hunt initiates coverage of UK challenger banks and specialist lenders, forecasting Aldermore, OneSavings Bank and Shawbrook will deliver average return on equity of 21 per cent

Lauren Fedor
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Peel Hunt said FTSE 250 challenger banks offer investors an opportunity (Source: Getty)

Analysts at the stockbroker Peel Hunt initiated coverage of three of Britain's challenger banks today, naming Shawbrook their "top pick" among smaller lenders.

In a note out this morning, analysts Anthony Da Costa and Stuart Duncan said that after a "period of significant share price weakness", there is "currently an opportunity to acquire high-quality/high return specialist lending businesses at compelling valuations".

The analysts have started covering FTSE 250 lenders Aldermore, OneSavings Bank and Shawbrook, forecasting that the three stocks will deliver average returns on equity of 21 per cent by the end of the decade.

"We find that each of the three companies in this note is conservatively positioned and can materially withstand higher impairment charges," they wrote. "Fundamentally, each will benefit from the strength of demand for credit, whilst supply remains constrained."

​Shawbrook, which went public in April of last year, was the analysts' top pick with a target price of 350p per share. Peel Hunt said the lender offered "the most upside from a valuation perspective, but also a conservative balance sheet and an attractive business mix".

Peel Hunt also stuck a "buy" rating on Aldermore and OneSavings Bank.

Shawbrook is set to publish its full-year results for 2015 on Thursday, while Aldermore is scheduled to report next week.

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