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Credit Suisse reckons Virgin Money could now be an “attractive” takeover target

Analyst David Da Wei Wong admits it’s a “purely theoretical scenario” at the moment and has actually cut his recommendations and targets to reflect margin pressures and increased costs
Richard Branson in front of virgin money store
Although he’s downgraded the stock to ‘neutral’, Wong reckons the shares could be worth 50% more if a serious bidder does come in

UK retail bank Virgin Money Holdings (UK) PLC (LON:VM.) could now be an “attractive” takeover target,  according to analysts at Credit Suisse.

The Swiss banking giant reckons current valuations of around seven times this year’s forecast earnings (7x 17/18 earnings) are low compared with its peers.

READ: Virgin Money slumps as it warns on UK mortgage market pressures and shrinking margins

Virgin also has the potential to be one of the first movers in becoming a ‘front-to-back’ digital organisation which, if successfully implemented, “arguably leaves the prospective investor with a differentiated asset”.

Previous merger and acquisition activity in the sector has seen offer prices of around 10x 12-month forward consensus earnings according to analyst David Da Wei Wong, which would imply around a 50% upside to the current share price.

At this moment in time though, Wong admits this is just a “purely theoretical scenario” and has actually downgraded Virgin Money to ‘neutral’ from ‘outperform’, while he has also chopped his price target to 305p (from 330p).

READ: Virgin Money close to all-female leadership team as bank confirms “advanced discussions” with new potential chair

In Thursday morning’s note he he’s “cautious about the margin outlook” given potential constraints on deposit and mortgage pricing.

As a result of weaker margins, growth and £35mln of costs associated with the digital bank, the analyst has lowered his earnings forecasts to 37.42p per share this year (down from 38.11p) and 38.75p next year (from 41.29p).

Shares edged 0.5% higher to 267.2p midway through the morning session on Thursday. 

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