RBC Capital has switched its ratings for two UK challenger banks, double-downgrading Virgin Money PLC (LON:VM.) to ‘underperform’ from ‘outperform’ and upgrading CYBG PLC (LON:CYBG) to ‘sector-perform’ from ‘underperform’ in two separate notes to clients.
For Virgin Money, the Canadian broker’s analysts said: “We expect VM's high LTD (loan-to-debt) ratio and high TFS (term funding scheme) FLS (funding for lending scheme) funding and lack of current account funding will pressure consensus growth and margin expectations in 2018 before the digital bank build-out has a chance to offset the pressure.”
READ: Virgin Money slumps as it warns on UK mortgage market pressures and shrinking margins
RBC’s analysts also reduced their price target for Virgin Money to 250p from 350p with the shares currently changing hands at 264.4p each, down 2.3% on last night’s closing price.
Meanwhile, the analysts raised their target price for CYBG to 300p from 240p, with its shares trading at 307.4p this morning, up 1.9% from Tuesday’s close.
READ: CYBG in the red as it expects mortgage lending growth to ease
The RBC analysts said: “Strong current account growth as TFS ends and higher rate sensitivity in a rising swap rate environment make us more positive on the name but valuation holds us back from an Outperform rating.”