Paragon Banking’s (PAG) transition from a largely wholesale-funded lender to a banking institution with greater utilisation of customer deposits continued to pay off during the first half. The net interest margin rose to 2.16 per cent, from 2.09 per cent in the previous year. However, greater competition within the debt purchasing market meant its higher-margin Idem Capital business made no new investments during the period. That means management expects the year-on-year rise in its net interest margin for FY2018 to be at the lower end of its guided range, at five basis points.
Focusing on professional landlords helped grow buy-to-let lending more than a fifth to £671m. Almost three-quarters of its customers were operating through a corporate structure or complex cases. However, the average yield on its post-2010 assets dipped from 4.42 per cent to 4.08 per cent.
Commercial lending generated 14 per cent organic lending growth. Motor finance was up more than a third, reflecting the development of the distribution network, although this is expected to moderate as the business matures. Paragon also acquired Iceberg, which provides short-term finance to solicitors and their clients. It made £42m of new loans in the three months since its acquisition, with the potential to expand its credit lines to other professional services.
Analysts at Shore Capital expect to increase their adjusted net tangible asset forecast for September 2018 to 370p a share.
| PARAGON BANKING (PAG) | ||||
| ORD PRICE: | 537.5p | MARKET VALUE: | £1.4bn | |
| TOUCH: | 537.5-538.5p | 12-MONTH HIGH: | 559p | LOW: 400p |
| DIVIDEND YIELD: | 3.1% | PE RATIO: | 12 | |
| NET ASSET VALUE: | 391p | LEVERAGE: | 14.7 | |
| Half-year to 31 Mar | Total operating income (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2017 | 124 | 56.4 | 20.5 | 4.7 |
| 2018 | 130 | 62 | 23.7 | 5.5 |
| % change | +5 | +10 | +16 | +17 |
| Ex-div: | 5 Jul | Payment: 27 Jul |
