Investec Securities has cut its rating for CYBG PLC (LON:CYBG) to ‘hold’ from ‘buy’, with shares in the merged challenger bank having rallied strongly since late December, as it sees "better value elsewhere" on a 12-month view.
The City broker set a new target price of 230p on the stock, which in afternoon trading were changing hands at 215.40p each, down 0.8%
In a note to clients, Investec’s analysts noted that, following the merger between the Clydesdale Bank and Yorkshire Bank owner with Virgin Money which concluded last October, full synergies are not expected until the 2022 financial year.
The analysts said the forecast progress with some aspects of the merger integration will be relatively slow, while there will be continued pressure on net interest margin.
They pointed out that CYBG missed out on initial awards from the Royal Bank of Scotland Group PLC (LON:RBS) alternative remedies scheme, but it has applied under the second round and could also make use of the incentivised switching scheme, which will have £350mln of money from RBS to help redistribute SME customers around to challenger banks.
The analysts said: "For CYBG, there is a clear opportunity to secure new liability-rich customer relationships, accelerate growth and rebalance the group away from mortgages."
They added: "For the patient investor, we think CYBG offers further upside potential, but after a 26% return since 27 December, on a 12-month view, we see better value elsewhere."
The analysts said Investec’s preferred name in the banking sector is Charter Court Financial Services Group PLC (LON:CCFS) - which in March launched an all-share merger with Onesavings Bank PLC (LON:OSB) - where it retains a 'buy' rating.