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Virgin Money UK shares downgraded by two sets of analysts

Broker Peel Hunt said the this week’s earnings miss versus consensus was largely due to higher loan losses, with Virgin having the higher quarterly charge of the year

Virgin Money UK PLC -

Virgin Money UK (LON:VMUK) shares have been downgraded by analysts at Citigroup and Peel Hunt on Friday.

Following the challenger bank’s full-year results earlier in the week, when it slumped to a larger than expected statutory loss of £141mln due to £501m of impairment charges, Citi and Peel Hunt both removed their previous ‘buy’ recommendations and moved to ‘neutral’ and ‘add’ respectively.

Citi said it was calling time on its buy rating after Virgin Money’s shares outperformed larger domestic peers and European bank sector.

On the back of the results, Citi increased its 2021 earnings per share forecast 9% but left estimates for the year after unchanged.

The analysts said they “remain constructive on self-help potential”, but said the shares were now on a relatively high forecast P/E ratio.

Broker Peel Hunt said the this week’s earnings miss versus consensus was largely due to higher loan losses, with Virgin having the highest quarterly charge of the year, bringing the full year cost of risk to 68 basis points compared to 21bps last year.

“However, this was caused not by rising arrears, but by a tightening of the economic forecasts that inform IFRS9 provisioning models, and guidance is for loan losses in FY21 to be less than in FY20.

“VMUK’s economic assumptions behind its IFRS9 provisions now appear conservative by sector standards.”

Both sets of analysts lifted their share price targets, however, with VMUK’s shares having doubled since the start of last month, Citi moving to 140p from 130p and Peel Hunt to 147p from 110p.

Quick facts: Virgin Money UK PLC

Price: 134.4 GBX

LSE:VMUK
Market: LSE
Market Cap: £1.93 billion
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