UK challenger bank CYBG (CYBG) releases its first quarter to 31 December results. While there is plenty to cheer in the set of numbers, the bank is down 2.5% to 322.8p on margin and growth concerns.
Mortgage lending rose at an annualised rate of 7.4% to £23.9bn during the quarter although it expects this growth to ease to mid-single digit growth for the remainder of its financial year ending 30 September.
The bank says that though the mortgage market remains competitive, it expects price stability going forward.
Its core offering of loans to small and medium enterprises has posted annualised growth of 1.4% with £567m of new lending in its first quarter.
Customer deposit balances climbed 14.8% to £28.7bn and the bank says that asset quality remains strong with an annualised net cost of risk of 12 basis points in line with expectations.
THE NOT SO GOOD NEWS
The bank’s net interest margin (NIM) which is a key indicator of its profitability fell from 220 basis points to 216 basis points.
Analysts at investment bank Citi say that ‘while NIM is below consensus, CYBG called this result in-line with prior guidance and continues to expect full year 2018 NIM of around 220 basis points [versus consensus of 219 basis points]’.
Citi gives CYBG a ‘sell’ recommendation and broker Exane BNP Paribas says ‘we continue to view the shares as expensive trading on 1.1-times current tangible net asset value, with the headline double digit return on tangible equity target for 2019 stretching in our view’.
Citi has a 300p price target on CYBG while Exane BNP Paribas is slightly more generous with a 320p target.
Shares covered this bank in August last year and while pleased that it looked set to pay an inaugural dividend we were slightly concerned that the bank’s fortunes were tied to the UK economy.
These concerns are not shared by CYBG, which says ‘despite the ongoing uncertainty in relation to the terms of the UK’s withdrawal from the European Union and its potential impact on the outlook for the UK economy, we remain confident in our ability to deliver the group’s full year 2018 and medium-term guidance’.
