After CYBG announced in September that surging payment protection insurance (PPI) claims would have knocked up to 190 basis points from its common equity tier-one (CET1) ratio, chief executive David Duffy was inundated with shareholder calls to axe the dividend and preserve capital buffers. The lender – since fully rebranded as Virgin Money UK (VMUK) – duly obliged this week, leading to an ecstatic response from the market.
In fact, investors bid up the combined group’s shares by more than a fifth on news of the payout’s suspension and first sight of a full-year income statement clobbered by one-off charges. Admittedly, the extra £385m set aside for PPI redress was £65m below top-end guidance, although £156m of restructuring charges and £189m in acquisition costs mean the legacy group’s statutory earnings per share (EPS) have been negative in four of the past five years.
That restructuring has at least delivered some efficiency improvements. A 6 per cent drop in overheads offset declining income, reducing Virgin Money’s underlying cost-to-income ratio to 57 per cent. A further 12 percentage points need to be shaved from that metric within three years if the lender is to hit a key target.
Broker Investec forecasts adjusted net tangible assets of 249p at the September 2020 year-end, rising to 263p in FY2021.
| VIRGIN MONEY UK (VMUK) | ||||
| ORD PRICE: | 173p | MARKET VALUE: | £2.47bn | |
| TOUCH: | 172.8-173.4p | 12-MONTH HIGH: | 220p | LOW: 102p |
| DIVIDEND YIELD: | NIL | PE RATIO: | N/A | |
| NET ASSET VALUE: | 351p | LEVERAGE: | 20.1 | |
| Year to 30 Sep | Total operating income (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2015* | 1.03 | -285 | -28.7 | nil |
| 2016* | 1.00 | 77 | -22.5 | nil |
| 2017* | 1.04 | 268 | 17.3 | 1.0 |
| 2018 | 1.01 | -164 | -19.7 | 3.1 |
| 2019 | 1.75 | -232 | -17.9 | nil |
| % change | +74 | - | - | - |
| Ex-div: | na | |||
| Payment: | na | |||
| *As CYBG. | ||||
