Diversification is the word on management's lips at Paragon (PAG), as the alternative lender continues to spread its bets away from its core buy-to-let mortgage business. Paragon Bank is at the heart of this, with retail deposits more than doubling over the first half to £1.4bn. The bank also acquired Five Arrows Leasing Group - now renamed Paragon Bank Asset Finance - in November, adding exposure to the growing financing market for small- and medium-sized businesses. The £5.1m generated by this business helped offset the continuing costs of growing the Paragon Bank and helped the division turn a maiden underlying profit of £1.7m.
Net interest income rose 13 per cent to £110m. Paragon Bank is taking an increasing part of this and, as well as diversifying the group's funding base by adding retail deposits to the mix, it adds a more varied income stream: the bank financed £639m of assets outside buy-to-let during the first half - or around 44 per cent of its outstanding loan balances - up from £24m. Second-charge mortgages now make up the biggest chunk of these non-buy-to-let assets at £326m, compared with just £3.8m the same time the previous year. The bank also purchased £102m in balances from Paragon's debt management division, Idem Capital. At a group level, £209m was invested in purchased debt, with Paragon Bank making its first investment of £185m. The group also re-entered the motor finance market.
However, buy-to-let is still a considerable part of Paragon's lending. Unsurprisingly, both Paragon Mortgages and Paragon Bank experienced a surge in buy-to-let completions ahead of the increase in stamp duty in April, which almost doubled to £824m. Yet the pipeline for buy-to-let mortgages halved to £351m. Management says it expects the rate of completions to slow during the second half and, over the longer term, to be lower than the "strong rate of expansion witnessed in recent years". An increase in its stressed interest rate for mortgages to 5.35 per cent from 5 per cent also put pressure on the pipeline.
Analysts at Numis expect adjusted pre-tax profits of £152m for the year to September 2016, giving EPS of 43.8p (from £134m and 35.5p in FY2015).
PARAGON (PAG) | ||||
|---|---|---|---|---|
| ORD PRICE: | 300p | MARKET VALUE: | £860m | |
| TOUCH: | 300-302p | 12-MONTH HIGH: | 449p | LOW: 285p |
| DIVIDEND YIELD: | 3.9% | PE RATIO: | 8 | |
| NET ASSET VALUE: | 336p | LEVERAGE: | 14.5 | |
| Half-year to 31 March | Total operating income (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2015 | 104 | 62.6 | 16.3 | 3.6 |
| 2016 | 122 | 69.5 | 19.1 | 4.3 |
| % change | +17 | +11 | +17 | +19 |
Ex-div: 30 Jun Payment: 22 Jul | ||||
