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Paragon profits push higher as diversification pays off

By Michele Maatouk

Date: Wednesday 21 Nov 2018

(Sharecast News) - Full-year profits at Paragon Banking Group rose as the bank's efforts to diversify began to bear fruit.
In the year to 30 September, underlying pre-tax profit rose 7.8% to £156.5m, while underlying earnings per share were up 11.3% to 48.2p, with growth in each of the company's operating divisions. The largest increase was seen in commercial lending, where profits grew 41.1% to £19.9m.

Mortgage lending was up 10.8% in the year to £1.6bn, while commercial lending volumes rose 82.6% to £710m and the buy-to-let lending pipeline increased 28.9% to £778.9m. Meanwhile, deposit balances rose 46.5% to £5.3bn.

The net interest margin increased by eight basis points to 2.21%, the cost-to-income ratio was broadly stable at 40.6% and Paragon's impairment ratio ticked up one basis point to 0.06%.

The common equity tier 1 ratio came in at 13.8%, down from 15.9% due to acquisitions and Paragon lifted its dividend by 23.6% to 19.4p.

Chief executive Nigel Terrington said: "We have delivered another strong financial performance, with increased profits driven by broader lending growth and enhanced margins, whilst maintaining our high credit standards.

"In the last year we have made great strides in our strategy to become a leading UK based specialist banking group. A combination of new start-up ventures and acquisitions means we now offer an increasingly broad range of products, supporting British savers, homeowners, landlords, consumers and small businesses.

"The restructuring of our business last year enabled us to improve the efficiency of the allocation of our resources and capital. The broadening of our product range, coupled with our strong asset quality, leaves us well placed to deliver further targeted growth in the years ahead."

Shore Capital said the results were "strong" and ahead of its expectations at an adjusted level.

"The shares have fallen by 22% since reaching a recent high of 524p in July and currently offer 50% upside to our last published fair value of 615p (we do not expect this to change much with roll forward broadly offsetting the impact of anticipated forecast changes).

"We continue to hold Paragon in high regard, believing that the diversification strategy is being well-executed and that this should continue to drive solid loan book growth while also delivering further improvements in profitability and return on equity over time. An experienced management is well-positioned to steer the group through any Brexit-related uncertainty, in our view."

At 0920 GMT, the shares were up 0.7% to 414.20p.


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