One Savings Bank profits as buy-to-let lending continues to thrive
One Savings Bank hiked its dividend 21% as it achieved a strong income statement and balance sheet growth while delivering a return on equity of 29%.
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OSB Group
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The challenger bank delivered a 29% return on equity despite the impact of the bank corporation tax surcharge and an improvement in the capital ratio to 13.3%.
Underlying loan book growth jumped to 20% from 10% in the first half and 13% after nine months, with net loans and advances swelling 16% to £5.9bn and gross originations up by 28% to £2.3bn.
The net interest margin increased to 314 basis points from 309bps a year before, helping lift underlying PBT 29% to £137.0m.
Statutory PBT leapt 55% to £163.1m, reflecting a £34.7m exceptional gain on the disposal of its interest in the Rochester 1 securitisation vehicle of and an exceptional loss of £9.8m related to hedged legacy interest rate swap cancellations.
Underlying basic earnings per share increased 20% to 41.7p, beating consensus forecasts by 4%, and a final dividend of 7.6p per share was proposed that gives a full year dividend of 10.5p.
"We have once again met or exceeded all of the financial objectives we set at IPO despite a number of regulatory and tax changes," said chief executive Andy Golding, highlighting that the loan book growth from One Savings' specialist lending brands such as Kent Reliance demonstrated the strength of its lending model.
Looking forward he added: "Following this strong performance in 2016, we entered 2017 with a strong pipeline of new business and are seeing very strong application levels in our core businesses.
"We expect to deliver net loan book growth in the mid-teens in 2017, whilst keeping NIM and cost to income ratio broadly flat."
The Stamp Duty increase for buy-to-let purchases introduced last April has been absorbed by the market with "little long-term impact" for OSB's target audience of professional landlords, with new BTL underwriting standards providing the group a competitive advantage as landlords have begun to increasingly borrow via limited companies, which is one of its specialities.
"Our manual, bespoke approach to underwriting will give us additional advantages when further market-wide measures to strengthen underwriting standards are to be implemented from September 2017 as we already substantively meet the regulatory requirements for assessment of landlords with four or more mortgaged properties."
Broker Numis said the increase in underlying profit was ahead of its estimate of £133m and heralded the "excellent" credit quality, with impairment of just 16bps, down from the 23bps reported in the prior year, and the increased cost:income ratio of 27% that "remains best in class".
RBC Capital Markets said guidance was encouraging and results in 8% and 9% increases to its 2017 and 2018 EPS forecasts to around 10% and 7% ahead of Bloomberg consensus.
These higher forecasts and a lower cost of equity lead to its price target being increased 25% to 445p.
"OSB still has potential upside, consensus upgrades, value, growth and an over-capitalised balance sheet in a fully valued market, and we maintain our 'outperform' rating," analysts wrote.