14th Mar 2024 13:22
(Alliance News) - Shares in OSB Group PLC plunged on Thursday, despite results that were ahead of expectations, after weak guidance sparked chunky cuts to profit forecasts by analysts.
Shares in OSB were down 16% to 385.60 pence each in London on Thursday afternoon. They had earlier traded as low as 324.80p.
OSB is a Chatham, England-based mortgage lender, formerly known as OneSavings Bank. It said pretax profit fell 30% to GBP374.3 million in 2023 from GBP531.5 million in 2022, as net interest income declined by 7.2% to GBP658.6 million down from GBP709.9 million.
Chief Executive Andy Golding explained that, as previously disclosed, the results were significantly hurt by the adverse effective interest rate adjustment, relating primarily to a shorter time spent on the reversion rate by its Precise Mortgages customers.
Net interest margin narrowed to 231 basis points from 278bps in 2022, while the cost to income ratio rose to 36% from 27%. The return on equity decreased to 14% from 21%.
Despite the lower profit, OSB increased its annual dividend to 32.0p per share from 30.5p, though in 2022 OSB also paid a special dividend of 11.7p.
Looking ahead, OSB said it expects its underlying net interest margin to be broadly flat compared to the 2023 underlying NIM of 251bps, reflecting the impact of a higher cost of funds and the full-year impact of some lower margin lending in 2023.
The underlying cost to income ratio is expected to be broadly flat compared to 2023, and OSB expects to deliver underlying net loan book growth of around 5% for 2024.
Shore Capital banking analyst Gary Greenwood said the results were ahead of expectations, but "net interest margin guidance is lower than we and consensus had expected, which is likely to drive sizeable forecast downgrades."
Greenwood said loan growth is "in line with our expectations, but net interest margin is about 30bps lower than what we have modelled in and consequently the [cost to income] ratio is higher".
Greenwood provisionally expects this to result in adjusted pretax profit forecasts falling to a range of GBP450 million to GBP470 million. This compares to his current forecast of GBP560 million.
"These are sizeable downgrades," he noted.
OSB also launched a GBP50m share buyback, although Greenwood said this was lower than the GBP150 million he predicted.
However, he thinks there is scope for a further buyback to be announced at the half year results.
Greenwood said he provisionally expects to reduce his fair value for OSB to 700p per share from 835p to around 700p, but is happy to stick with a 'buy' recommendation.
He recommended taking "advantage of any negative share price reaction today".
By Jeremy Cutler, Alliance News reporter
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