High lending and lower costs helped OneSavings Bank (OSB) generate a 60% rise in underlying pre-tax profit in the six months to the end of June. The news, along with an upbeat outlook statement, sends the stock 10.6% higher to 351p.
The Kent-based lender, which listed in June 2014, made a £47.6 million pre-tax profit following a 17% rise in lending to £4.6 billion. Part of the hike in first half lending was due to the £260 million it spent buying a mortgage portfolio in March. The rest was from new customers.
OneSavings, which specialises in buy-to-let and small business lending and is largely funded by customer deposits, also saw its cost to income ratio fall to 26% from 29% in 12 months, meaning that 26p in every £1 it earns is spent on costs.
This helped the FTSE 250 bank’s core business improve with net interest margin – the interest paid to its depositors compared to the interest collected from those it lends to – breaching the 3% mark from 2.8% a year ago.
Capital reserves are 11% of its risk-weighted assets, exceeding the 10% benchmark set by the regulator.
OneSavings, which rejects claims that it is a challenger bank due to it not providing current accounts, declared a 2p a share dividend.
Ian Gordon, an analyst at Investec, believes that despite its growth the bank is not expensive. ‘We recognise that OneSavings Bank has already delivered very material outperformance with a 2015 year-to-date total shareholder return of 50%, but trading on 7.0x 2017e EPS we still consider its valuation to be undemanding.’