On just nine times average forecast earnings for the 12 months to September, shares in Paragon Banking (PAG) appear priced for a fall. On one level, that is understandable. Despite an 11 per cent rise in retail deposits to £5.9bn in the six months to March, the bank’s loan book is more than twice this size, and heavily weighted to a buy-to-let market facing ever-growing political scrutiny.
At the same time, a raft of acquisitions and investments in technology have pushed up spending, with operating costs up 15.3 per cent year on year. Growth in the balance sheet has suppressed the common equity tier one ratio. Statutory profit was knocked by a negative movement in interest swap rates at the end of the period, and a fair value charge of £7.8m.
However, the credit quality of Paragon’s largely professional lender base remains excellent. Just 0.12 per cent of the buy-to-let book was in arrears during the period, compared with 0.41 per cent across the sector nationally.
Loans made since 2010 have performed even better, while lending to buy-to-let landlords and commercial enterprises is being made at wider margins than the legacy portfolio. Accordingly, Paragon’s net interest margin is up eight basis points, to 2.24 per cent.
Analysts at Numis expect pre-tax profits of £147m and EPS of 45.7p in the 12 months to September, dipping to £127m and 40.2p in FY2020.
| PARAGON BANKING (PAG) | ||||
| ORD PRICE: | 465p | MARKET VALUE: | £1.21bn | |
| TOUCH: | 464.6-468p | 12-MONTH HIGH: | 559p | LOW: 379p |
| DIVIDEND YIELD: | 5.7% | PE RATIO: | 9 | |
| NET ASSET VALUE: | 417p | LEVERAGE | 15.8 | |
| Half-year to 31 Mar | Total operating income (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2018 | 130 | 77.2 | 23.7 | 5.5 |
| 2019 | 148 | 72.0 | 22.5 | 7.0 |
| % change | +14 | -7 | -5 | +27 |
| Ex-div: | 4 Jul | |||
| Payment: | 26 Jul |
