- Strong H1 operating profit growth
- Increased full year profit guidance and share buyback
- H1 Dividend up 17%
Specialist mortgage provider Paragon Banking (PAG) saw its shares top the FTSE mid cap leaderboard, gaining 8% to 542.5p after the company delivered 22% growth in first half operating profit, increased guidance and revealed an additional £50 million share buyback.
Management now expects mortgage lending for the year to 30 September to be in the range of £1.75 billion to £1.9 billion, raising the lower band by around 10% and a higher net interest margin of 3%, up from previous guidance of 2.89%.
WHAT DID THE COMPANY SAY?
CEO Nigel Terrington commented: ‘We are delighted to deliver another strong financial and operational performance, achieving record interim operating profits, alongside robust growth in our loan book.
‘New mortgage lending increased by 19.1% due to our focus on supporting professional landlords, who continue to see strong portfolio growth and tenant demand.
‘Our commercial lending loan book increased by 13.9%, supporting Paragon’s diversification strategy.’
Underlying operating profit increased 22.2% to £128.9 million and the cost to income ratio fell to 38.1% from 41.2% a year earlier. The company finished the half with a core equity capital ratio of 15.6%, up from 15.4%.
The deposit base grew 20% to £11.9 billion of which 94% is guaranteed under the FSCS (Financial services compensation scheme). Importantly the company said it saw no disruption to deposit gathering following the US mini-banking crisis in March.
Paragon increased the half year dividend by 17% to 11p per share. Looking forward the company said it is well placed to compete ‘strongly’ and take market share in its chosen specialist markets.
EXPERT VIEW
Gary Greenwood, banking analyst at Shore Capital, said increased guidance should drive a ‘high single digit’ upgrade to his already top end earnings forecast.
‘Our underlying PBT forecast of £247 million (EPS of 81p) was top of range with consensus sat around £238 million (source: Paragon). We provisionally expect to upgrade this to around £260 million (EPS of circa 87p).
‘Assuming a 40% payout, this would drive DPS of circa 35p (versus our current forecast of 32.5p). We will firm up these forecasts in due course.’
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