Shares in specialist lender Paragon Banking Group PLC (LSE:PAG) jumped over 10% to 540p after it hiked the dividend by almost a third, announced a new share buyback and lifted its outlook on returns and margins.
The FTSE 250-listed provider of mortgages for landlords and loans for business customers reported underlying profits for the year to 30 September 2023 up 25% to £277.6 million, versus the City analyst consensus of £251 million, as the loan book grew 4.7% and retail deposits increased 24%.
While the buy-to-let (BTL) market slowed significantly in 2023, Paragon said the more specialist sector in which it operates has been "materially more resilient".
Underlying earnings per share rose 35% to 94.2p, also ahead of estimates, while return on tangible equity of 20% beat the 15% target for the second year running, and prompted an update to guidance from the 15% target to a 15-20% range.
The net interest margin (NIM) widened 40 basis points (bps) in the year to 309bps and is guided to be 300-310bps next year.
Given a strong capital position, with a CET1 ratio of 15.5%, a total dividend of 37.4p was declared, up 31%, and a new share buyback of £50 million was announced.
"Whilst the external environment remains dynamic with high interest rates and inflation, the group remains well placed to continue supporting its customers in its chosen specialist markets," said boss Nigel Terrington.
As noted by analysts at Jefferies, guidance is "unsurprisingly" for less new lending in the new financial year, of £1.3-1.6 billion in BTL and £1.0-1.2 billion in commercial.
NIM is expected to stay between 3% and 3.1%, with ROTE expected to be at the upper end of the new range.
Jefferies said it was increasing it forecasts 6% "on a bigger loan book, higher NIM, well-controlled costs and slightly fewer shares than previously forecast".