To analysts at financial data group Moneyfacts, rising product numbers and largely static interest rates across the UK’s buy-to-let mortgage market point to “early signs of recovery”. Although that view probably has borrowers in mind, even the most charitable reading of half-year results from lender Paragon Banking (PAG) would struggle to feel optimistic about the outlook for the professional landlord sector.
Already, the group expects lower economic output will hit lending volumes and future income. “At this stage, it is difficult to predict when lending markets will return to normality,” acknowledges the FTSE 250 group. For this reason, Numis thinks a fivefold rise in first-half impairments to £30m is just the start, and expects the bank “to take a substantial further uplift in impairment" in the second half.
This assessment rests on Paragon’s own base case assumptions for the UK economy, which include a 6.7 per cent dip in GDP, a 1.7 per cent decline in house prices and a 6.8 per cent unemployment rate for 2020. This forecast – which carries a two-fifths weighting in the lender’s expected credit loss framework – is rather more hopeful than the Bank of England’s stress test, which expects a far more severe 14 per cent economic contraction this year, and 8 per cent unemployment.
Analysts at Numis expect earnings per share of 9.5p for the year to September, and a loss of 28.7p per share in FY2021.
| PARAGON BANKING (PAG) | ||||
| ORD PRICE: | 373p | MARKET VALUE: | £957m | |
| TOUCH: | 372-374p | 12-MONTH HIGH: | 556p | LOW: 217p |
| DIVIDEND YIELD: | 3.8% | PE RATIO: | 8 | |
| NET ASSET VALUE: | 437p | LEVERAGE | 15.3 | |
| Half-year to 31 Mar | Total operating income (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2019 | 148 | 72.0 | 22.5 | 7.0 |
| 2020 | 150 | 57.1 | 17.6 | nil |
| % change | +1 | -21 | -22 | - |
| Ex-div: | na | |||
| Payment: | na |
