18th Nov 2020 09:22
(Alliance News) -Â Virgin Money UK is best placed to enjoy strong mortgage market activity, Barclays said as it double-upgraded the stock to Overweight from Underweight.
Virgin Money shares were up 5.6% at 149.60 pence in London on Wednesday, and down 20% since the start of the year. Barclays bumped up its price target to 165p from 100p.
"We think Virgin Money is well-positioned to take advantage of improvements in the UK mortgage market, alongside ongoing cost savings as synergies are recognised post-merger," said Barclays.
Virgin Money in its current form was known as CYBG until the end of October 2019, changing its name as part of a rebranding following the purchase of fellow challenger bank Virgin Money Holdings for GBP1.7 billion in October 2018. It also owns Clydesdale Bank and Yorkshire Bank.
Noting the UK mortgage market's strong activity post-lockdown, Barclays said it thinks the trend "has legs" and this is not fully reflected in the consensus.
While Barclays expects an easing in conditions, it thinks much of the year-to-date improvement is sustainable, with Virgin Money "best positioned" to benefit.
"We think that home mover mortgage volumes are likely to normalise from the peak seen in the summer, as post-lockdown demand eases and the Stamp Duty relief comes to an end. However, remortgaging applications have failed to recover to pre-Covid levels, and we think a delayed improvement in remortgaging will support volumes going forward," said Barclays.
The bank highlighted that it is 4% ahead of the market on 2022 net interest income estimates, giving Virgin Money the benefit of increased mortgage spreads which Barclays believes consensus "has yet to price in".
Outside of the UK mortgage market, Barclays commented that consensus impairments look too high, with Virgin Money's asset quality "better than many peers".
Barclays said: "Despite the recent share price rally, domestic UK banks remain unloved in the sector and trade at 7.6x 2022e, with Virgin Money looking cheap to its already-discounted peers."
By Lucy Heming;Â [email protected]
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