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Paragon steps up a gear

TIP UPDATE: A new credit facility and strong rental demand bode well for Paragon
November 24, 2010

Paragon's chief executive Nigel Terrington was in an upbeat mood after the specialist buy-to-let lender pushed operating profits ahead by 45.9 per cent to £66.1m. And, by and large, he has succeeded in meeting the three targets the group set itself at the beginning of the year. These were to arrange a warehouse facility to allow new lending to recommence, protect shareholders' equity and develop new sources of income.

IC TIP: Buy at 162p

During the year, Paragon secured a £200m warehouse facility with Macquarie Bank which it will use to finance new mortgage lending. And there is plenty of demand, too, especially with more and more potential first-time house buyers opting instead to rent because of the mortgage scarcity. Protecting shareholders' funds has been achieved by maintaining a strict lending criteria, so that impairment provisions fell 40.5 per cent to £39.2m. In fact, loan arrears stood at just 0.83 per cent of the portfolio compared with a market average of 2.45 per cent. Paragon has also been busy developing new sources of revenue, including the purchase of buy-to-let portfolios from other lenders.

Broker Arden Partners is forecasting 2011 adjusted pre-tax profits of £72m and diluted EPS of 17.2p (from £66m and 17.8p in 2010).

PARAGON (PAG)
ORD PRICE:162pMARKET VALUE:£484m
TOUCH:161-162p12-MONTH HIGH:183pLOW: 113p
DIVIDEND YIELD:2.2%PE RATIO:9
NET ASSET VALUE:232p 

Year to 30 SepPre-tax profit (£m)Earnings per share (p)Dividend per share (p)
200682.861.217.0
200791.056.88.0
200853.717.93.0
200954.313.93.3
201071.818.33.6
% change+32+32+9

Ex-div: 12 Jan

Payment: 14 Feb

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