25th Oct 2023 13:50
(Alliance News) - Permanent TSB Group Holdings PLC shares fell on Wednesday, with weaker lending growth overshadowing a sharp rise in net interest income that was thanks to higher interest rates.
Analysts at broker Davy believe the early signs of "lower activity" mean earnings consensus for next year and beyond could suffer.
Net interest income jumped 93% in the first nine months of 2023. Its net interest margin jumped 92 basis points on-year to 2.31%. Dublin-based Permanent TSB put this down to "the changed interest rate environment" after rate hikes by the European Central Bank.
Year-to-date, new lending totalled EUR2.2 billion, up 9% annually. It represents a growth slowdown from the rise of 36% to EUR1.42 billion in the six months to June 30.
More positively, new mortgage lending alone was 11% higher, despite the wider market in Ireland being down 10% over the same period.
"This growth is supported by the strength in our mortgage proposition, together with mortgage switching activity which continued in the market into Q1'23 as customers sought rate certainty," Permanent TSB said.
"We have observed a change in customer behaviour, where some customers maturing from a fixed rate are now opting for a variable rate for the first time in a number of years."
Permanent TSB left its outlook unmoved. It added that "changes in mortgage customer rate choice" were already factored into its expectations.
Davy predicts the lending growth slowdown could leave analyst forecasts for Permanent TSB earnings at risk.
"Growth in deposit and new mortgage lending has slowed; although this will not impact 2023, it will likely result in a lowering of our 2024 and 2025 forecasts," the Dublin-based broker said.
"The lower level of new mortgage lending and with customers opting for standard variable rates over new fixed rates, combined with lower deposit flows, will not impact 2023 but will do so in 2024 and 2025. As a result, we will likely reduce our growth in income from 12% and 10% respectively to 10% and 9% respectively."
Davy still believes Permanent TSB's investment case "remains intact".
"Growing income and improving efficiency resulting in higher returns, coupled with capital efficiency, are not factored into current valuation levels," Davy added.
It rates Permanent TSB at 'outperform' with a 373 cents price target. Shares in the firm traded 9.3% lower at EUR1.85 each in London on Wednesday.
By Eric Cunha, Alliance News news editor
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