Paragon Bank shares jump after analysts hike target
Shares in Paragon Banking Group jumped on Monday after analysts reiterated their ‘Buy’ rating.
The FTSE 250 bank’s stock climbed over two per cent in afternoon trading, reaching 908.50p.
This came after Peel Hunt analysts upped their target price on the lender to 1,030p from 950p.
“The group’s capital and funding position remain strong, with the improved diversity of funding options a real strength,” analysts Stuart Duncan and Stephen Payne said.
The lender’s diversified offering included the launch of its new ‘Spring’ savers app, which analysts said was a “significant development” to help “further attract customers”.
Paragon recorded a 26.7 per cent surge in profit to £149.4m in the first half of the year, as the bank benefited from a 25 per cent boost to mortgage lending.
Paragon on hook for £6.5m in motor finance
The firm’s strong first-half results helped offset a £6.5m motor finance provision, which has haunted lenders of all sizes.
The historic saga headed to the Supreme Court in early May, where lenders Close Brothers and First Rand aimed to overturn the Court of Appeal’s October ruling.
The highest court in the land is expected to give its verdict in the summer on whether it was unlawful for banks to pay a commission to a car dealer without the customer’s informed consent.
The Financial Conduct Authority has said it will confirm a redress scheme within six weeks of a judgment. But the watchdog has expressed caution in making it “more expensive for consumers to buy a car in the future” as a result of a scheme.
This came in line with Chancellor Rachel Reeves’ changes to stamp duty, which allows numerous lenders to bolster their takings as Brits flocked to beat the deadline.
Paragon’s net interest margin – a crucial metric for banks that indicates its profitability from lending – remained steady at 3.13 per cent. This only marginally dropped from 3.14 per cent at the end of 2024 and remained ahead of expectations.
Payne and Duncan upgraded their guidance for net interest margin and expenses by around four per cent.
“Net interest margins benefited from the higher rate environment, but also the ongoing focus on managing pricing to maintain yields,” they said.
Analysts also expect underlying profit to be around four per cent above previous forecasts at £298m to £302m.
They said the lender “continues to deliver a strong operational performance, carefully growing and enhancing the business and delivering attractive, sustainable returns for shareholders.”