6th Jun 2023 14:41
(Alliance News) - Paragon Banking Group PLC shares are in a good position thanks to "record interim profits" in its first half and a much larger than expected share buyback, among other positive signs, according to analysts from Shore Capital.
Shares in Paragon were up 8.4% at 546.00 pence each in London on Tuesday. They have risen by 10% over the last 12 months.
The Solihull, England-based mortgage and loan provider's pretax profit decreased 68% to GBP46.4 million for the half year ended March 31, from GBP143.6 million the prior year.
However, Shore noted that Paragon's total operating income rose by 21% over the same periods to GBP220.2 million from GBP181.7 million, with net interest margin increasing to 2.95% due to a combination of rate rises and mix benefits.
Moreover, its net asset value at March 31 was GBP5.35 per share, up from GBP4.59 per share at the same time in 2022.
Paragon declared an interim dividend of 11.0p per share, up from 9.4p the prior year. Shore said this "was higher than we expected" and reflected "management [breaking] away from the normal policy of just paying out 50% of the prior year to ensure smoother progress."
The company also announced an additional GBP50 million share buyback, which was double Shore's expectation of GBP25 million.
Total new business volumes increased by 7% to GBP1.59 billion, 55% of Shore's current annual forecast. Net loan book growth increased by 2% to GBP14.6 billion, above its current forecast of GBP14.5 billion, while impairments increased by GBP6.2 million but were down compared with the second half of its previous financial year.
Retail deposits, meanwhile, increased 11% to GBP11.9 billion, which Shore said was "well above" its current forecast of GBP11.2 billion and "driving a better-than-expected improvement in the loan-to-deposit ratio", which increased by ten percentage points to 123%.
Total costs increased by 12% to GBP83.8 million, which Shore said resulted in "positive 'jaws' and an improvement in the underlying C/I ratio of 3.1 percentage points to 38.1%."
Shore said that "notwithstanding the uncertain economic environment, the outlook remains cautiously optimistic".
Paragon's full-year mortgage new business volume guidance, for instance, was upgraded to between GBP1.75 billion and GBP1.9 billion from a minimum of GBP1.6 billion.
Despite anxiety in the market "about the impact of rising interest rates on [buy to let] mortgage demand and impairments," Shore said Paragon's strong performance "would suggest such concerns are currently overdone" and that the company's stock "continues to offer good value". As a result, Shore maintained its 'buy' recommendation for Paragon.
By Emma Curzon, Alliance News reporter
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