RBC Capital starts Paragon at 'sector perform'
RBC Capital Markets initiated coverage of Paragon Banking Group at 'sector perform' with a 500p price target on Friday, noting that buy-to-let growth is still strong and Paragon is the only lender with an expanding margin.
Financial Services
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FTSE 250
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Paragon Banking Group
669.50p
16:45 19/04/24
"We like the UK buy-to-let lenders which are benefiting from high growth in high margin products with little signs of any credit risk," RBC said. "Paragon in particular offers attractive yield and increasing profitability."
It pointed out that the UK BTL market continues to grow despite a number of tax and regulatory changes and that Paragon is 86% BTL, which makes it the most exposed in RBC's coverage. In addition, it is well positioned to benefit from the increasing trend of professionalisation in UK BTL lending.
Meanwhile, contrary to other banks, RBC expects Paragon's net interest margin to expand due to the slow run off of the legacy book and an increase in corporate lending through organic growth and selective acquisitions.
However, RBC said it sees better value in Charter Court Financial Services and OneSavings Bank at lower multiples.
At 1540 BST, the shares were down 0.9% to 467.60p.