Hits: 5

14 April 2020

Paragon – COVID 19 Update

Share Price 342p

Mkt Cap £888m

Conflict Disclosure: No Holding

 

  • Update The trading update for the 6 months to March shows buy to let lending was flat at £694.6m while other mortgage lending shrank 5.7% to £98.2m and commercial lending grew 5.7% to £481.3m. Mortgage redemptions shrank 13% to £393m implying a good increase in the loan book. The buy to let pipeline is up 11% to £798.8m. NIM improved and costs are slightly below expectations. Because of uncertainty no interim dividend will be paid. It says its too early to determine the result on impairments of the crisis.

 

  • Estimates 10% PBT growth to September 2020 is expected to £163.6m.

 

  • Valuation The shares are down 36% since February. CAPE is 9.5 and PE to Sept 20 is 6.6 with a 5.8% yield. ROE is 12.8% and NTAV is £937p, 5.5% above the current share price.

 

  • Conclusion The 6 month update is very strong, and while there is uncertainty it feels uncomfortable to give a positive update and suspend the dividend as the future is uncertain. The shares are the wrong price. Id suspending the dividend is right they are too high, while if its wrong they are too low.

30 January 2020

A picture containing clipart

Description automatically generated

Paragon Banking Group – Trading Update

Share Price 527p

Mkt cap £1,351m

Conflict Disclosure: No Holding

  • Update Net loan book up 1.6% over the quarter to £12.4bn. CET 1 ratio was 14.2%.  Buy to let lending was 1.1% higher while overall mortgage lending was down 4$. The pipeline of buy to let lending is accelerating.  Commercial lending was up 19.9%.
  • Estimates 2.3% EPS growth is expected to September 2020 followed by 9% in 2021.
  • Valuation The ROE is 11.9% and it trades at 1.2X book value. PER 10.1X Yield 4.2%
  • Culture The glassdoor rating is 3.6 with 82% approval of the CEO
  • Conclusion This is looking a little dull, which is perhaps why the shares have gone up 27% over the last 12 months.  It is perhaps a safe place to hide but I am struggling to see the USP.

26 November 2019

Paragon Banking Group Plc  – FY Results 

Share Price 503p

Mkt Cap £1.29bn

Conflict Disclosure: No Holding

  • Results Lending was up 8.5% to £2.3bn which increased the loan book by a modest 0.5% to £12.2bn. NIM improved modestly to 229bps while cost of risk increased from 6bps to 7bps and the cost income ration increased from 40.6% to 42.1%. PBT was consequently up 5% to £164.4m while the CET1 ratio was 13.7%. Dividend up 9.3% to 21.2p. The outlook refers to profitability and future earnings strength but does no anticipate significant expansion of lending volumes in the year ahead in buy to let while no new deals have been completed at Idem Capital in the last year. Commercial lending is only 12% of the loan book.
  • Estimates PBT is politely ahead of consensus and a 4% PBT increase is anticipated in the year ahead to £171.1m
  • Valuation PER is 10.4X and yield 4.1%. ROE 12.5% and Price/book 1.2X.
  • Conclusion The company is looking ex growth at this stage of the cycle, so the only reason to own the stock is valuation. The shares are up 28% in the last 3 months on the back of the markets new found interest in value stocks. Looks like a time to take profits.

23 July 2019

A picture containing clipart

Description automatically generated

Paragon Bank  – Trading Update  

Share Price 445p

Mkt Cap £1.16 bn

Conflict Disclosure: No Holding

  • Update New business flows are stable with a modest rise in the Buy to Let pipeline. New lending of £1.9bn is reported to be strong. NIM is improving above the 2.24% reported in H1. And the 2.19% in 2018.
  • Estimates.The exceptional gain on the sale of a legacy portfolio will reduce profits by £2m in 2019 and £6m in 2020. The company expectations are unchanged
  • Valuation PER 8.9X and yield 4.7%. Price/Book 1.1X and ROE 11.9%
  • Conclusion Shares are very cheap but it is hard to see significant growth in Buy to Let and rates looking like they are going down rather than up it will be hard to grow significantly.  Too early to get excited yet.

23 July 2018

Paragon Banking Group – Trading Update 

Share Price 502p

Mkt Cap £1.31bn

·         Update – Mortage lending is up 6.7% in the 9 months to June 18 with commercial lending being £449m vs mortgages at £1.13bn. Idem Capital made its first purchase of a portfolio of loans in the quarter buying a motor and asset finance portfolio.  Guidance remains unchanged in terms of volumes and costs.

·         Valuation Current year ROE is expected to be 11.6% and the company trades at a cheap 1.2X book

·         Conclusion The shares are up 24% over the last 12 months and have doubled from their low in 2016.  The commercial lending is shorter duration than the mortageges so the company will have to run faster to make this a material part of the loan book. Idem Capital is likely to have some very exciting opportunities if the valuation of some of the motor lenders is to be believed which means now is the time to exit Paragon and buy it when the motor lenders are in trouble and Idem is buying the distressed loan books then.