Virgin Money UK PLC (LSE:VMUK) got a positive reception as it reported encouraging quarterly results, where loan book growth was driven by business lending and mortgages - giving an early indication of the sector's fortunes with its largest blue chip banking rivals announcing results later in the month.
During the three months to end-December, the challenger bank’s first quarter, the loan book increased 0.7% to £73.1bn, with mortgages up 0.4% to £58.4bn, business lending up 2.4% to £8.4bn and unsecured lending growth slowing 0.9% to £6.2bn.
Deposits swelled 1.2% to £66.2bn and net interest margin improved to 1.89% from 1.86%, which is towards the top of the unchanged full-year guidance range of 185-190 basis points.
Capital levels were stable, with the CET1 ratio remaining at 15%, well above the medium-term target range of 13-13.5%, but expected to remain above 14% this year given the macroeconomic uncertainty.
Chief executive David Duffy hailed “continued good progress on digitisation” with arrears “broadly stable” but increased support available for vulnerable customers, with the bank “prudently provisioned for an uncertain economic outlook”.
Provisions were increased to £485mln from £457mln in the fourth quarter, driven by higher modelled expected credit losses in cards.
“Looking ahead, we have good financial momentum and a number of exciting digital product launches to come which will support our continued growth.”
VMUK launched its new regulated buy-now-pay-later product ‘Slyce’ during the period and has a new mortgage platform expected to be rolled out shortly.
The shares rose 0.6% to 194.15p in early trading on Wednesday.
Broker Peel Hunt said loan growth of 0.7% in the period was "slightly ahead of expectations", driven by business banking and the net interest margin that "makes the FY23 guidance of 1.85%-1.90% appear modestly conservative".
Shore Capital pointed out that the shares have rallied from their lows over recent months but "remain materially undervalued, in our view", trading for 0.5x net asset value "despite management targeting a RoTE of >10% medium-term".
"The balance sheet is largely secured and well capitalised, which provides protection to the downside, while a failure to re-rate could potentially see the group become a bid target for private equity."