Virgin Money UK Plc - Defensive Loan Book Underpins Asset Quality, Strong Liquidity Position

Virgin Money UK Plc (LON: VMUK), earlier called as CYBG Plc, is a FTSE 250 listed financial services company, which deals in the business of providing solutions in the space of financial and banking services.

On 28^th July 2020, the Company will release its Q3 Trading update.

Recent News
On 5^th June 2020, the Group announced that Fiona Maclead to step down as non-executive director from 30 September 2020 as part of the board succession plan.

On the above same date,the Company said its joint venture with Standard Life Aberdeen Plc would receive the additional funding of GBP 25 million over the next 12 months. Virgin Money Unit Trust Managers Limited (VMUTM) will get GBP 12.5 million for supporting the strategic and customer proposition development, while the Standard Life (through its wholly-owned subsidiary Aberdeen Asset Management Plc (AAM)) will provide the remaining GBP 12.5 million.

Financial Highlights (H1 FY20)

(Source: Interim Reports, Company Website)

On 6^th May 2020, the Company provided the interim report for the six months ended 31 March 2020 and reported resilient financial performance.Loan growth stood at 0.3% to £73.2 billion and deposit growth of 1.4% to £64.7 billion. Personal lending growth was 6.2 per cent to £5.3 billion, and Business lending growth was of 5.7% to £8.3 billion in H1 FY20. NIM (net interest margin) for the first half of 2020 stood at 1.62 per cent and remained within the guidance range (Q2: 1.63 per cent).

Share Price Performance

1-Year Chart as at June-18-2020, after the market closed (Source: Refinitiv, Thomson Reuters)

On 18^th June 2020, Virgin Money UK Plc’s shares closed at GBX 100.25 and were down by 2.24 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 222.10/GBX 46.10.

From the technical standpoint, its shares were trading well above its short-term support level of 50-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.

Valuation Methodology


Valuation Metrics

(Source: LSE)

As on 29^th May 2020, the Price to Book multiple of the VMUK was 0.3x and the same multiple was lower as compared with the Banking industry. It is reflecting that the company is trading at a lower multiple as compared to its peers.

Growth Catalysts and Risk Factors
The Company is working in sync with regulators, Government, and Industry to support the customers by implementing new measures. The Group witnessed growth in loans and deposits, which resulted in optimisation of Balance sheet mix for the period. The COVID-19 outbreak and its impact on the consumers and nation’s businesses has changed the operating environment, driving a reduction in the underlying profitability and an increased impairment charge of £232m against the future loan losses.

Conclusion
Despite a tough market, the group’s performance has stayed on track. TheBank is delivering growth in client balances across personal, business and attracting relationship deposits. Implementation of the Basel III framework continues, seeking to improve the comparability of capital ratios. Although the full impact from the COVID-19 outbreak will take time to emerge. VMUK is enhancing at pace with the proposals to introduce exciting and new products for business and personal clients throughout 2020. However, the Group is well-equipped to support changing consumer needs and play a part in the UK’s economic recovery.

Based on the decent prospects, which are supported by valuation done using the above method, we have given a “Buy” recommendation at the closing price of GBX 100.25 (as on 18^th June 2020) with lower double-digit upside potential based 0.39x Peers NTM Median Price/Book Value (approx.) on FY20E book value per share (approx.).
 

Sanne Group Plc – Decent revenue growth reported in FY2019

FTSE 250 listed Sanne Group Plc (LON: SNN) is a London-headquartered multinational provider of alternative assets and corporate business services.

Recent News
On 11^th June 2020, the Group said that the LPEA (La Plata Electric Association, Inc.) announced the election of 30 new members to the Board of Directors in a landmark year celebrating the 10th Anniversary.

Financial Highlights (FY2019)

(Source: Annual Report, Company Website)

On 15^th April 2020, the Company published its annual report for the year ended 31 December 2019, with decent revenue growth, a decline in profits, and underlying cash flow generation in excess of guidance.Total Group revenue for FY19 increased by 14.7% (constant currency) to £165.4 million (FY18: £143.0m). Led by an exceptional one-off cost largely related to acquisition earn-out payments and also intangible impairment in South Africa, the statutory operating profit decreased by 36.3% to £14.3 million (FY18: £21.5 million). The Board proposed a final dividend per ordinary share of 9.4 pence (2018: 9.2 pence), reflecting a total dividend per share for 2019 of 14.1 pence (2018: 13.8 pence in total).

Share Price Performance

1-Year Chart as at June-18-2020, after the market closed (Source: Refinitiv, Thomson Reuters)

On 18^th June 2020, Sanne Group Plc’s shares closed at GBX 622 and were down by 0.32 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 762.00/GBX 418.00.

From the technical standpoint, its shares were trading well below its short-term support level of 50-day simple moving average prices, which reflects a downtrend in the stock.

Valuation Methodology


Valuation Metrics

(Source: LSE)

As on 29^th May 2020, the Price to Earnings, EV/EBITDA and Price to Book multiples of the SNN were 111.0x, 24.8x and 5.7x, respectively and the same multiples were higher as compared with the Financial Services industry metrics. It is reflecting that the company is trading at a higher multiple as compared to its peers.

Key Risks and Growth Catalysts
During an economic slowdown, expansion plans in the country would stop, limiting demand for new loans and impacting the repayment capacity of borrowers. Recently, the UK and international economies are experiencing unprecedented uncertainty stemming from COVID-19 mayhem. The Group has shown a decent momentum in the Alternatives and Corporate businesses positions.

Conclusion
Sanne Group seems to be well-positioned for future growth in 2020. The Board expects to deliver a resilient performance in 2020. Forex conditions remained tough and the Group continues to monitor the market and financial conditions closely. However, the Company sees a healthy pipeline of acquisition opportunities to expedite the growth plans and stay vigilant on the current macro-economic environment, especially the evolving COVID-19 outbreak.

Keeping in mind the risk associated to the company’s performance, we recommend investors to keep a “Watch” on the stock at the closing price of GBX 622.00 (as on 18th June 2020), while we look for any upcoming catalysts.
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.
 
* The “Buy” recommendation is valid for the current price as covered in the report as on 19th June 2020.

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