CYBG (CYBG) is beginning to excel at squeezing out operating costs. The continued reduction in headcount, combined with improved commercial terms renegotiated with third-party suppliers, drove a 7 per cent reduction in underlying costs during the first half. That helped lower the challenger bank's cost-to-income ratio to 64 per cent, closing in on its 55-58 per cent target range. Management reckons full-year costs will come in below £640m, down on the £650m previously guided. But that wasn’t enough to make shareholders forgive the – admittedly pre-flagged – £350m increase in payment protection insurance (PPI) provisions and continued pressure on mortgage yields.
Loan growth came in on target at 5 per cent, with growth across all three of its lending lines. Gross mortgage loans were up 6 per cent to £24.1bn, ahead of the wider market growth rate. However, the average yield on those balances declined 19 basis points to 2.77 per cent, due to an increase in the proportion of lower-margin owner-occupier lending and more competitive mortgage pricing. That also brought down the lender’s overall net interest margin to 2.18 per cent, from 2.26 per cent in the previous year, but management expects this to come in on target at 2.20 per cent.
There was similar pressure on yields for unsecured personal lending – management is intent on reducing exposure to this area over the long term, due to increased competition. There was better news in core SME lending, which rose 5 per cent to £7.3bn, at an average yield of 3.88 per cent – up from 3.72 per cent last year.
The challenger also managed to reduce its cost of funding to 0.77 per cent from 0.82 per cent in the prior year. Retail deposits grew by 5 per cent, notably fixed rate deposits where some higher priced products matured. However, switching incentives offered to current account customers meant non-interest income declined 12 per cent.
Analysts at Shore Capital expect adjusted net tangible assets of 290p a share at September 2018, up from 296p at the same time last year.
| CYBG (CYBG) | ||||
| ORD PRICE: | 307.2p | MARKET VALUE: | £2.72bn | |
| TOUCH: | 307-307.4p | 12-MONTH HIGH: | 342p | LOW: 260p |
| DIVIDEND YIELD: | 0.3% | PE RATIO: | 57 | |
| NET ASSET VALUE: | 369p | LEVERAGE: | 14.5 | |
| Half-year to 31 Mar | Total operating income (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2017 | 497 | 46 | 1.7 | nil |
| 2018 | 503 | -95 | -10.2 | nil |
| % change | +1 | - | - | - |
| Ex-div: | na | |||
| Payment: | na |
