- Confidence returning among borrowers
- ‘Disciplined approach’ to lending
- Credit quality remains good
Financial services group Virgin Money UK (VMUK) posted a positive first-quarter trading update with ‘growth in new accounts, deposits and target lending segments, at stable margins and with ongoing cost efficiencies’ according to chief executive David Duffy.
Investors responded by sending the shares up 2p or 1.4% to 151.75p.
GOOD START AND TARGETS MAINTAINED
Mortgage lending was slightly lower than the final quarter of 2023 and the same period a year ago but that was down to the group’s disciplined approach.
In fact, the firm reported early signs activity in the mortgage market improved in January and was almost back to 2019 levels which is a good sign not just for lenders but for the housing sector.
A week ago, the Nationwide house price survey also noted an improvement in sentiment among home buyers now that interest rates look to have peaked and rate cuts will be on the cards at some point.
Deposits were marginally up on the previous quarter, with the same net interest margin, and the company kept its full-year 2024 margin guidance even allowing for mortgage spread pressure and lower interest rate expectations.
Also, importantly, credit quality remains good meaning the bank made a marginal increase in its total loan loss provisions without overly impacting its capital ratios.
EXPERT VIEWS
Gary Greenwood, financials expert at Shore Capital, expects consensus forecasts to stay roughly where they are after the group confirmed its full-year guidance but is keeping his Buy recommendation and 245p price target.
Russ Mould, investment director at AJ Bell, called Virgin Money ‘remarkably positive in its latest update’, highlighting its increased share of credit card lending.
‘The big worry whenever a bank updates on trading is the level of bad debts given the fragile backdrop. Virgin Money reported a ‘modest increase’ in its provisions, which certainly hasn’t troubled the market’, commented Mould.
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Ian Conway) and the editor (James Crux) own shares in AJ Bell.
