Paragon Banking's (PAG) shift towards becoming a fully fledged banking group took another step forward during the year to September. Following a restructure of its operations, the bulk of the group’s activities were moved under subsidiary Paragon Bank. Chief executive Nigel Terrington says this has not only created operational efficiencies, but also increased liquidity within the group. That’s given management the confidence to boost its payout, reducing dividend cover to 2.75 times earnings, from 3 times at the half year. That’s expected to come down to 2.5 times in the 2018 financial year. A further £50m share buyback was also announced.
Buy-to-let momentum continued apace. New lending here was up more than a fifth to £1.5bn year on year. The pipeline of buy-to-let loans was also up 88 per cent compared with the same point the previous year at £604m. However, that was down on the level at the half-year stage, following the implementation of the second phase of the Prudential Regulatory Authority reform, which forced lenders to go into much more detail on the borrower when underwriting buy-to-let loans.
Competitive pressures caused yields to tighten, with the average yield on post-2010 buy-to let mortgages reducing to 4.48 per cent, from 4.71 per cent. However, Mr Terrington regards this a sustainable level for the lender.
New commercial lending was up two-thirds to £389m, with asset finance benefiting from a full-year’s contribution from its Five Arrows acquisition. Motor finance benefited from expansion in its distribution network, with new lending increasing by half. The average yield was also up from 4.85 per cent to 5.13 per cent. In contrast, the average asset finance yield declined from 11.78 per cent to 9.35 per cent. However, Mr Terrington says this is in line with the business repositioning itself towards the higher-quality, mid-range segment of the market.
Idem Capital acquired just £98m of new loans during the year, compared with £209m in 2016. Balances stood at £611m at the end of the year, down from £668m, as realisations outstripped the pace of acquisitions.
Analysts at Shore Capital expect adjusted net tangible assets of 371p at the end September 2018.
| PARAGON BANKING GROUP (PAG) | ||||
| ORD PRICE: | 496.2p | MARKET VALUE: | £1.25bn | |
| TOUCH: | 469.2-470p | 12-MONTH HIGH: | 496.2p | LOW: 345p |
| DIVIDEND YIELD: | 3.2% | PE RATIO: | 12 | |
| NET ASSET VALUE: | 380p | LEVERAGE: | 15 | |
| Year to 30 Sep | Total operating income (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2013 | 178 | 105 | 28.2 | 7.2 |
| 2014 | 198 | 123 | 31.9 | 9 |
| 2015 | 212 | 134 | 35.5 | 11 |
| 2016 | 244 | 116 | 40.5 | 13.5 |
| 2017 | 253 | 117 | 43.1 | 15.7 |
| % change | +4 | +1 | +6 | +16 |
| Ex-div: | 4 Jan | |||
| Payment: | 19 Feb |
