Virgin Money UK PLC (LON:VMUK) said it was continuing to “disrupt the status quo” in the banking sector, but while customer deposits and small business loans grew in the past quarter, mortgage sales declined.
Overall, the challenger bank’s customer deposits grew 1.6% to £64.8bn in the three months to 31 December, the first quarter of its financial year, with the total loan pretty much flat at £72.9bn.
READ: Virgin Money shares surges as market welcomes suspension of the dividend
Net interest margin, the difference between rates charged for loans and paid on savings, remained at 160 basis points as it was in the fourth quarter of the preceding year.
“In a difficult market, our own performance has remained on track and we continue to make strong progress on our ambition to disrupt the status quo,” said chief executive David Duffy, hailing the £6.5bn lent to SMEs over the three years to the end of 2019.
He added: “While sentiment improved following December's election result, the UK banking market continues to face competitive pressures and uncertainty over the final Brexit settlement.”
Virgin Money saw its mortgage book shrink 0.8% to £59.6bn as it “remained disciplined in a competitive market”, though business lending grew 2.5% to £8.1bn helped by customers switching from RBS, and personal lending was up 3.7% as its credit card offer proved attractive.
Following the CYBG’s takeover of Virgin Money in 2018, the integration of the two companies has so far made roughly £70mln of annual run-rate net cost savings.
Duffy also hailed the launch of the first Virgin Money digital personal current account and three new Virgin Money concept stores in December.
“We are also progressing at pace with our plans to launch new and exciting Virgin Money products for personal and business customers throughout 2020,” he said, helped by a new ‘Digital Disruption Hub’ in Newcastle.
VMUK shares rose 2% to 169p in the first hour of trading on Tuesday.
Analysts at Shore Capital noted that full year guidance for a margin of 160-165bps remains unchanged and they forecast adjusted profit before tax of £563.4mln, adjusted diluted earnings per share of 25.1p and a dividend of 5p per share assuming the reinstatement of a final dividend but no interim.
“Having initially rallied sharply in the aftermath of the election result in December, VMUK’s shares have since retrenched and are now trading back around their pre-election level,” the analysts said.
“We think this is unjustified given that the outlook for the UK economy is now arguably better than it was previously. In addition, we continue to see significant scope for self-help from merger-related cost savings, with upside potential to consensus earnings forecasts in the medium term if the group can deliver on its target RoTE of >12% by 2022.”
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