OSB’s £50mn buyback fails to impress the market

Shares in OSB (OSB) took a tumble, despite the specialist bank announcing a £50mn share buyback, as the results showed no sign that the pressure on the group’s net interest margin (NIM) was about to lift, despite prolonged high interest rates. The underlying NIM came in well below consensus at 2.51 per cent, with company guidance showing no significant improvement for this year.

The main reason OSB’s effective interest rate (EIR) is suffering is that its professional buy-to-let landlords are not waiting around once their initial offers expire, and in the first half were refinancing quickly to avoid paying significantly higher interest rates. Management said the average time spent on reversion rates had since fallen in line with the long-term average at five months.   

Meanwhile, the buyback failed to resonate because it looked rather small in comparison with the £150mn announced this time last year, although there might be scope for more payouts at the next interims. However, that will also depend on its funding mix, with OSB having to refinance relatively cheap debt with a total of £550mn in senior and tier two notes in 2023, which carry much higher servicing costs due to interest rate rises. Clearly, this adds further pressure on the group’s basic profitability.  

OSB will also be looking for a new chief financial officer after the planned retirement of April Talintyre at the general meeting in May after an 11-year stint at the firm.

Broker Peel Hunt said the ongoing pressure on OSB’s margin could cut its earnings per share forecasts by up to 10 per cent for 2024. Currently, it values the bank at four times earnings, with a prospective dividend yield of 9 per cent. Hold.

Last IC view: Hold, 385p, 10 Aug 2023