The Bank of England’s (BoE) funding scheme has cushioned the effects of ultra-low interest rates for many of the UK’s lenders since it was opened in September 2016. But the window closes in February 2018. After accelerating its draw-down from the scheme by £1.5bn in June to £4.9bn, Virgin Money (VM.) expects the net interest margin (between lending and funding) for the full-year to be at the bottom-end of its 157-160 basis point range. That's because the extra funds have been held at the BoE, and not yet lent out.
The net interest margin declined marginally in the period to 1.59 per cent, in line with guidance. Impairments remained stable at 0.4 per cent of loans and advances, while a £2.1bn rise in mortgage balances helped boost net interest income by 9 per cent to £207m. Management has been focusing on growing prime residential lending (not buy-to-let), which now represent 81 per cent of the business’s total.
At £2.8bn, credit card balances closed in on management’s target of £3bn by the year-end. Net interest income was up 31 per cent to £81.5m. However, with a higher proportion of balances attributed to newer customers on promotional terms, the net interest margin here fell to 6.2 per cent, and there remain questions about Virgin's accounting assumptions.
Analysts at Investec expect net tangible assets of 302p a share at 31 December 2017, up from 273p the previous year.
| VIRGIN MONEY (VM.) | ||||
| ORD PRICE: | 279.2p | MARKET VALUE: | £1.24bn | |
| TOUCH: | 279-279.3p | 12-MONTH HIGH: | 353p | 235p |
| DIVIDEND YIELD: | 1.9% | PE RATIO: | 8 | |
| NET ASSET VALUE: | 391p | LEVERAGE: | 24.7 | |
| Half-year to 30 Jun | Total operating income (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2016 | 288 | 93.7 | 14.1 | 1.6 |
| 2017 | 329 | 124 | 17.7 | 1.9 |
| % change | +14 | +32 | +26 | +19 |
| Ex-div: | 10 Aug | |||
| Payment: | 22 Sep |
