After hitting its target to increase credit card balances to £3bn by the end of last year, Virgin Money (VM.) has embarked on a new growth initiative. Like its mainstream peers, the challenger bank is investing heavily in digital banking, in the hope of competing with the incumbents for lower-cost current account balances and primary savings. It will launch beta testing of its digital products during the second half of the year.
Virgin had no problem attracting new customers last year. Its loan book grew 12 per cent to £37.1bn. Mortgage lending was up by a similar proportion, with prime residential continuing to account for the lion’s share of the loan book. However, ensuring that lending generates a sufficient margin has been a greater challenge. Rising competition and lower funding costs – via the Term Funding Scheme – meant lower mortgage spreads, which declined by 19 basis points to 1.68 per cent.
Similarly, while credit card balances grew by almost a quarter – sending net interest income up more than a fifth – the net interest margin on that business reduced by 74 basis points to 5.95 per cent. That reflected lower yields on newer business. Impairment charges also increased by a fifth, although still stood at just £42m.
Analysts at Shore Capital expect adjusted net tangible assets of 321p a share at 31 December 2018, up from 297p a year earlier.
| VIRGIN MONEY (VM.) | ||||
| ORD PRICE: | 276.9p | MARKET VALUE: | £1.23bn | |
| TOUCH: | 276.7-277.1p | 12-MONTH HIGH: | 347p | LOW: 250p |
| DIVIDEND YIELD: | 2.2% | PE RATIO: | 7 | |
| NET ASSET VALUE: | 410p | LEVERAGE: | 24.1 | |
| Year to 31 Dec | Total operating income (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p)* |
| 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 |
| 2017 | 663 | 263 | 37.8 | 6 |
| % change | +14 | +35 | +29 | +18 |
| Ex-div: | 05 Apr | |||
| Payment: | 16 May |
