Management expectations of net interest margin pain during the second half were well founded at Virgin Money (VM.). The challenger bank felt the effects of a further reduction in the Bank of England base rate during 2016. Admittedly, accessing the government's term lending scheme offset some of this pressure, helping lower its cost of funds to 130 basis points from 143 basis points in 2015. But overall its net interest margin tightened by five basis points to 1.6 per cent.
Gross mortgage lending was up 12 per cent at £8.4bn, taking mortgage balances to just under £30bn. Credit card balances were up more than half at £2.4bn, getting closer to management's 2017 target of £3bn. Chief executive Jayne-Anne Gadhia says she expects credit card lending to slow to a similar rate of growth to mortgage lending as the business matures.
This lending was supported by 12 per cent growth in retail deposits to £28bn. During the year, the challenger bank opened a further 300,000 savings accounts. Growing income supported a sizeable reduction in the underlying cost-to-income ratio, which stood at 57.2 per cent at the end of the year.
Analysts at Shore Capital currently expect adjusted net tangible assets of 303p a share at December 2017 (end-2016: 273p), but said its forecasts "may need to come down slightly".
VIRGIN MONEY (VM.) | ||||
|---|---|---|---|---|
| ORD PRICE: | 332.1p | MARKET VALUE: | £1.48bn | |
| TOUCH: | 332.1-332.4p | 12-MONTH HIGH: | 388p | LOW: 196p |
| DIVIDEND YIELD: | 1.5% | PE RATIO: | 11 | |
| NET ASSET VALUE: | 375p | LEVERAGE RATIO: | 22.0 | |
| Year to 31 Dec | Total operating income (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2012 | 262 | 160 | na | na |
| 2013 | 379 | 185 | 42.4 | na |
| 2014 | 438 | 34 | -0.4 | nil |
| 2015 | 522 | 138 | 22.9 | 4.5 |
| 2016 | 581 | 194 | 29.4 | 5.1 |
| % change | +11 | +41 | +28 | +13 |
Ex-div: 5 Apr Payment: 10 May | ||||
