The term ‘challenger bank’ has always been little more than a catch-all, as the financial institutions in question have continued to evolve their business models, often in quite different ways. For Paragon Banking (PAH) it means diversifying revenue streams and avoiding financing segments prone to margin pressure, together with ramping up commercial loan volumes while gradually shifting funding channels from capital markets to retail deposits.
The bare bones show Paragon is clearly faring better than some of its illustrious high-street rivals. Underlying pre-tax profits for the year to September 2018 rose 7.8 per cent to £156.5m, helped along by a 10.8 per cent increase in mortgage lending and an 82.6 per cent rise in commercial lending volumes. Deposit balances increased by 46.5 per cent from £3.6bn to £5.3bn and shareholders will feel doubly encouraged by the 28.9 per cent hike in the bank’s buy-to-let lending pipeline to £778.9m.
The quest for diversification resulted in the July deal to acquire finance provider Titlestone Property Services, with an accompanying portfolio of development finance loans, for £274m. The deal will enable Paragon to achieve “critical mass” in this sub-sector, although building scale obviously comes at a cost, evidenced by a 210 basis point reduction in its CET1 capital ratio.
Investec is guiding for adjusted net tangible assets of 378p for the September 2019 year-end.
| PARAGON BANKING (PAG) | ||||
| ORD PRICE: | 420p | MARKET VALUE: | £1.10bn | |
| TOUCH: | 418-420p | 12-MONTH HIGH: | 559p | LOW: 398p |
| DIVIDEND YIELD: | 4.6% | PE RATIO: | 8 | |
| NET ASSET VALUE: | 420p | LEVERAGE: | 15 | |
| Year to 30 Sep | Total operating Income (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2014 | 198 | 123 | 31.9 | 9.0 |
| 2015 | 212 | 134 | 35.5 | 11.0 |
| 2016 | 244 | 116 | 40.5 | 13.5 |
| 2017 | 253 | 145 | 43.1 | 15.7 |
| 2018 | 302 | 182 | 55.9 | 19.4 |
| % change | +19 | +25 | +30 | +24 |
| Ex-div: | 10 Jan | |||
| Payment: | 18 Feb |
