Virgin Money is heading into bid target territory according to Shore Capital after another downward lurch following a half-yearly update today.
Investors took fright at a sharp rise in bad debts and dumped shares in the second-tier bank and mortgage lender, sending the price down by almost 6% to 144p.
Profits were down by 25% at £236mln but bad debt provisions jumped nearly sixfold to £144mln and VMUK anticipates arrears to increase based on economic conditions and credit bureau data.
Shore Cap said the results were mixed with profits coming out better than expected and an upgrade to the net interest margin the plusses, but the downbeat guidance especially the dropping of the returns target underlined the uncertainty.
Profits for the year are likely to hit £552mln, predicts the broker, which puts it right at the top of the consensus range of £123-559 mln.
“Our last published fair value of 320p equates to a trailing P/TNAV of 0.9x and implies the shares are worth more than double the current price.
"This is based on a sustainable RoTE (return on equity) of 10%.
“While today’s numbers are mixed, we do not think the very low valuation can be overlooked and think VMUK could be a bid target if its share price doesn’t recover soon.”