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Shares in Clydesdale owner CYBG seriously undervalued, says analyst after interim figures

The bank's shares, up 9% initially, settled at 195.9p, ahead 2.4%
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The company expects full-year earnings to be slightly above consensus

Shares in CYBG PLC (LON:CYBG), the owner of Yorkshire and Clydesdale banks, were firmer in afternoon trade as the market heaved a collective sigh of relief in the wake of a “resilient” set of interim figures.

Underlying profit fell 5% £286mln in the six months due to impairment charges, while statutory earnings dropped to just £29mln due to tax charges and the costs of acquiring Virgin Money last year.  

On a like-for-like basis, revenues were flat at £843mln as lower margins from the mortgage book were offset by an increase in income from products such as credit cards.

The shares, up 9% initially, settled at 195.9p, ahead 2.4%.

Shore Cap a fan 

Shore Capital analyst Gary Greenwood said he believes the stock is undervalued and currently discounting a deterioration in the company’s return on equity.

He reckons there is scope for “substantial cost synergies” from the £1.7bn Virgin acquisition, which is currently slated to deliver cost savings of £150mln annually, of which £33mln have already been delivered.

Greenwood reiterated his ‘buy’ rating and 305p a share price target on CYBG shares, which is some 56% above the current share price.

The analyst estimates CYBG has surplus capital above and beyond what is required by regulation of £400mln. Lloyds Banking Group (LON:LLOY) recently pledged to buy back £1.75bn of shares following a relaxation of rules around the amount of cash it has to keep on its balance sheet in case of a market emergency.

CYBG said it was on target to deliver profits of £585mln for the year, marginally ahead of consensus. In common with other retail banks, CYBG is trimming costs as top line growth stalls.

“Despite sustained competition in the mortgage market and a continued uncertain economic backdrop, we have delivered solid growth in our mortgage book and we have seen signs that mortgage pricing has started to stabilise,” said boss David Duffy.

“In our SME business, we have maintained momentum in the origination of new customer facilities and we are also seeing good growth from our Virgin Atlantic credit card proposition.”

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