Paragon Banking Group PLC (LSE:PAG) was top of the FTSE 350 risers on Wednesday morning after the specialist lender declared a half-year profit beat, hiked its interim dividend and announced a further share buyback.
Operating profits for the half-year to 31 March increased by 14% to £146 million, ahead of consensus expectations of roughly £140 million.
The interim dividend was increased 20% to 13.2p and the company announced a further share buyback of £50 million, taking the total for the year to £100 million.
Paragon reported an underlying return on tangible equity (ROTE) of 20.8%, up from 18.7% a year ago.
Its net interest margin improved to 3.19% from 3.09% at the year end, benefiting from the higher rate environment, tight retail funding costs and a carefully managed lending yield.
This contributed to 12% growth in operating income, versus 7% growth in operating expenses, to £90 million.
The shares rose 6.4% to 49.5p.
Nigel Terrington, CEO of the buy-to-let lender and business loan provider, said there has been "a strong recovery in customer demand with new business pipelines materially above the levels seen at the year-end, improving the outlook for lending volumes for the rest of this year".
Analyst input
Analysts at broker Peel Hunt also pointed to the buy-to-let pipeline growing to £0.9 billion from £0.6 billion at the year’s start. The development finance pipeline also saw improvements.
"Looking ahead, after a slower start, recent months have shown more positive momentum," said Peel Hunt.
"We anticipate increasing our underlying profit forecasts by 7-8%, to £280-285m (from the current £263m, with consensus per Visible Alpha at £275m). This revision is primarily driven by upgraded NIM guidance - the company now expects NIM to be over 310bps, compared to the previous range of 300-310bps."