11th Aug 2022 15:54
(Alliance News) - OSB Group PLC's record underlying profit in the first half shows the bank is in a "strong" position, analysts said Thursday.
Shares in the lender were 4.8% higher on Thursday afternoon in London at 573.50 pence each. In 2022, OSB is up 3.3% and has gained 15% over the past 12 months.
The bank put its strong performance down to a rise in its loan book and a higher net interest margin.
In the first six months of 2022, pretax profit rose to GBP268.1 million from GBP221.9 million. Keeping a lid on profit growth, OSB booked a GBP1.6 million impairment on financial assets, reversing a GBP14.6 million gain in the year before.
"First half results show a strong performance with a record level of underlying profitability. Full year net interest margin guidance has been upgraded which we estimate should add around 5% to our full year earnings forecast," Shore Capital said.
Shore now forecasts 2022 underlying profit at GBP550 million, versus previous expectations of GBP528 million, and expects statutory pretax profit towards GBP500 million, compared to its previous forecast of GBP468 million.
In 2021, it recorded pretax profit of GBP464.6 million.
Net interest income rose to GBP343.4 million from GBP265.3 million the year before. Its net interest margin improved to 2.80% from 2.36%.
"The group has improved its underlying NIM guidance and now expect it to be broadly flat to 1H22. Management remains confident in delivering underlying net loan book growth of about 10% for FY22 based on the current pipeline and applications. The FY22 underlying cost to income ratio is still guided to increase marginally from FY21," Liberum said.
Its loan book ended the half at GBP21.76 billion, rising from GBP21.08 billion at the same point a year prior. Its buy-to-let loan book rose to GBP9.10 billion from GBP8.87 billion, while its Residential book increased to GBP2.16 billion from GBP2.11 billion.
Liberum added: "The underlying net loan book grew by 7% year on year and 3% half-on-half to GBP21.6 billion supported by originations of GBP2.3 billion, which were down 7% year on year following a strong 1H21 which benefited from the stamp duty relief, as demand remained strong for BTL and residential sub-segments despite worries of a slowdown in the housing market."
Retail deposits were up to GBP17.94 billion from GBP17.53 billion.
Its CET1 ratio slipped to 18.9% from 19.6%.
OSB's cost-to-income ratio was 25% in the first half, improved from 28% the year before.
It declared an interim dividend of 8.7 pence, rising from 4.9p the year before.
"Our current fair value of 800p offers 46% upside to the current share price. OSB is a very solid business that is well delivering a sector-leading return on equity despite being extremely well capitalised," Shore said. "In this regard, we view the current stock rating as being totally inappropriate with the shares materially undervalued at the current level."
The broker holds a 'buy' rating for OSB, with Liberum also at a 'buy'.
By Paul McGowan; [email protected]
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