Might 2020 be the year when buy-to-let lenders’ business model – that focus on a smaller pool of landlord-borrowers over the famous British demand for home ownership – is properly vindicated? First-half numbers from OneSavings Bank (OSB) make the case for the affirmative.
Three pieces of evidence are particularly strong. First, in a six-month period marked by profound uncertainty and several weeks in which the housing market was essentially on ice, OSB managed to increase organic originations by £2.1bn, or 7 per cent of the loan book excluding structured asset sales. Second, the underlying cost-to-income ratio dropped 300 basis points to just 26 per cent, as the merger with Charter Court served to cut central costs and management overheads.
Finally, there was the return on equity: 9 per cent on a statutory basis, or 18 per cent once professional fees, integration costs and other acquisition-related items are stripped out. These are returns larger peers could only dream about in good years, let alone with Covid-19 casting a long, complicated shadow over loan values and credit risk.
On that front, OSB has hardly taken the easy route out. A five-fold hike in the loan loss provision has resulted in a £54.4m increase in expected credit losses, but assumes house price deflation will climb to 14.3 per cent in 2020 alone based on the weighted average of economic forecast scenarios.
Consensus forecasts are for earnings of 47.9p per share in 2020, rising to 50.7p in FY2021.
| ONESAVINGS BANK (OSB) | ||||
| ORD PRICE: | 306p | MARKET VALUE: | £1.37bn | |
| TOUCH: | 306-307p | 12-MONTH HIGH: | 461p | LOW: 155p |
| DIVIDEND YIELD: | NIL | PE RATIO: | 7 | |
| NET ASSET VALUE: | 347p | LEVERAGE: | 14.7 | |
| Half-year to 30 Jun | Total operating income (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2019 | 143 | 90.5 | 25.5 | 4.9 |
| 2020 | 245 | 99.3 | 15.5 | nil |
| % change | +71 | +10 | -39 | - |
| Ex-div: | n/a | |||
| Payment: | n/a | |||
