Paragon upgrades its buybacks to £100mn

Investors now have a first look at how banking is performing away from the high street in 2024 via interim results from specialist lender Paragon (PAG) unveiled interim results that were strong enough to trigger upgrades across the board. In a sign of confidence, the bank also doubled its expected share buyback programme this year to £100mn.

A combination of strong deposit growth, a higher net interest margin of 3.19 per cent and a gradual recovery in mortgage and commercial lending meant that underlying pre-tax profits, which strip out the impact of fair value asset gains, were 13.5 per cent higher at £146mn, with a corresponding return on tangible equity of 20.8 per cent – helped in part by a falling cost ratio, which ended the half at 36.5, or 1.5 percentage points lower.  

The deposit book led the way with a 24.4 per cent increase to £14.8bn as Paragon catered to savers looking for market-beating rates; the company had a particularly strong Isa season. New mortgage lending was 36 per cent lower at £650mn, although there were signs of recovery with the buy-to-let pipeline maintaining a positive trend and coming in slightly higher at £870mn. Higher interest rates meant impairments ticked higher, but Paragon cheered investors by moderately upgrading both lending and net interest margin guidance for the full year.

Broker Peel Hunt rates the shares for 2024 at 8.3 times earnings, with a price to tangible net asset value of 1.3. This a definite premium to the high-street banks but it is difficult to argue with the quality of the earnings and the expected shareholder returns. Buy.

Last IC view: Buy, 665p, 27 Mar 2024