Virgin Money UK Plc

 
Virgin Money UK Plc (LON: VMUK), formerly called as CYBG PLC, is a financial services company that indulges in the business of providing solutions in the space of financial services as well as banking.

The group will announce its interim results on 6^th May 2020.

First Quarter 2020 Trading Update (as on 28th January 2020)
The company provides its trading update for the three months to 31st December 2019. In the first quarter of 2020, the customer deposits increased by 1.6% to £64.8 billion, driven by the good relationship deposit performance. The mortgage book for the first quarter of 2020 decreased by 0.8% to £59.6 billion. In Q1 FY2020, business lending increased by 2.5% to £8.1 billion. This reflects a robust contribution in the period from clients switching from RBS and good organic business lending growth. Led by high-quality credit card growth, the personal lending growth for the Q1 FY2020 increased by 3.7% to £5.2 billion. The net cost of risk for the current period of 23bps with asset quality staying resilient. In Q1 FY20, NIM stabilised at 160bps and remained the same from the Q4 FY19. CET1 ratio for the first quarter of 2020 decreased by 20bps to 13.1%, driven by the RWA progress from asset mix and Business lending seasonality. The company also showed good progress in processing the outstanding PPI Information Requests. PPI prices are tracking in line with the provision expectations. The company assesses its staying provision as sufficient to complete the outstanding volumes.

Share Price Performance

Daily Chart as of April 24^th, 2020, before the market close (Source: Thomson Reuters)

Virgin Money UK Plc shares were trading at GBX 65.14 at the time of writing before the market close (at 9:43 AM GMT) on 24^th April 2020 and down by 4.79% versus the previous day closing price. Stock's 52 weeks High is GBX 222.10 and Low is GBX 46.10.

Valuation Methodology


Growth Catalysts
Virgin Money UK has increased the pace to launch new products under Virgin Money name for business and clients during 2020. The company continue to emphasis on supporting the clients, meeting the medium-term financial targets, and also delivering on the strategic priorities.

Conclusion
The company is well-positioned for the current quarter. In a tough market, the group’s performance has also stayed on track. The company is delivering growth in client balances across personal and business and attracting relationship deposits. While in a competitive mortgage market, the company is maintaining the discipline. Over the three years to the end of 2019, the company has also now delivered to lend 6 billion pounds to SMEs, with a total credit of 6.5 billion pounds. This comprises lending of £0.9 billion in Yorkshire, £0.5 billion in the Midlands, £1.3 billion in Scotland, and £0.9 billion in the North West, showing the assistance for SMEs across the areas of the United Kingdom. The group has launched its digital personal current account under Virgin Money brand and also unveiled Virgin Money concept stores to improve the growth and attract new customers. With the outbreak of Covid-19, many countries have imposed restrictions on travel and resulted in a sharp fall in the stock markets globally.

Based on the decent prospects and support from the valuation as done using the above method, we have given a “BUY” recommendation at the current price of GBX 64.91 (as on 24^th April 2020, before the market close at 9:20 AM GMT), with lower-double digit upside potential based on 0.24x Price/Book Value (approx.) on FY20E book value per share (approx.).

International Personal Finance Plc

International Personal Finance Plc (LON: IPF) is a financial services company providing consumers with unsecured consumer credit. The company offers consumer finance products, channels, and brands through home credit and digital.
The group will provide Q1 Trading update on 30^th April 2020.

Covid-19 update (as on 1st April 2020)
On 1^st April 2020, International Personal Finance released an update on the developments regarding the Covid-19 pandemic. In respect of this, the regulators and governments have implemented several changes. In the cap, there is a decrease in Poland on non-interest costs. The flat level of the cap is declined to 15 per cent from 25 per cent of the loan value and the additional variable cap to 6% per annum from 30% per annum, with the aggregate total of the caps of not more than 45 per cent of the loan value. Until the end of 2020, the debt repayment moratorium is available for clients not in default in Romania. In the view of COVID-19, the management has decided to cancel the recommended annual final dividend per share of 7.8 pence which will result in a GBP 17.3 million of cash saving. Despite the uncertainty, the company has delivered a strong balance sheet. On the end of February 2020, the company had headroom on undrawn debt facilities of £203 million and 45% of equity to receivables capital ratio.

Share Price Performance

Daily Chart as of April 24^th, 2020, before the market close (Source: Thomson Reuters)

International Personal Finance Plc shares were trading at GBX 34.78 at the time of writing before the market close (at 9:50 AM GMT) on 24^th April 2020 and up by 6.85% versus the previous day closing price. Stock's 52 weeks High is GBX 204.50 and Low is GBX 32.55.

Valuation Methodology


Growth Catalysts
The company had shown growth in issued credit from its IPF Digital business with good credit quality. The company’s Europe based home credit market had shown strong financial performance and operational execution.

Conclusion
The group operations are impacted by the outbreak of coronavirus, and the group witnessed a decline in the number of customers. Despite the uncertain environment, the company is confident towards its strategy as it supports growth and addressing the demands of its customers and shareholders. The group is investing in European home credit businesses to improve its offering to retain and attract customers with enhanced efficiency. IPF is focused on improving its operational performance from Mexico home credit business, which will deliver higher growth and profitability in the financial year 2020. The group is taking the required steps to make it’s Digital business a profitable fintech company with a focus on improved credit quality and portfolio growth balanced. In the financial year 2019, the company has delivered a decent financial performance. The company had a robust balance sheet with strong funding position for the period.

Based on the above rationale and valuation done using the above valuation methodology, we have given a "Speculative Buy" recommendation at the closing price of GBX 32.55 (as on 23^rd April 2020), with lower double-digit upside potential, based on the 3.85x NTM Price/Earnings per share (approx.) on the FY20E earnings per share (approx.)

 
*All forecasted figures and peers have been taken from Thomson Reuters.
*The “Speculative Buy” recommendation is also valid for the current price as covered in the report (as on 24^th April 2020).

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