David Duffy’s Virgin Money to boost buybacks after forecast-beating profits

Virgin Money, which is led by Irishman David Duffy, reported full-year results that beat expectations and said it would boost buybacks by £50 million (€57.6 million), sending its shares up by as much as 16 per cent on Monday morning.

The country’s sixth-largest lender reported pretax profits up 40 per cent to £595 million, ahead of analyst expectations of £578 million and driven by rising interest rates, which hit 3 per cent at the start of November.

The bank said it would pay out a dividend of 7.5p per share and buy back an additional £50 million in shares on top of £75 million announced in June.

Virgin Money’s share price is still down 14 per cent in the year to date as investors attempt to gauge whether the worsening UK economy and increasing default risk will be outweighed by the benefits of rising interest rates.

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The bank, created following a 2018 takeover by FTSE 250 rival CYBG, said on Monday that credit quality remained “robust”, despite deterioration in the economy and a significant increase in non-discretionary spending.

“We’re not seeing any significant signs of stress in our portfolios yet,” said Mr Duffy, a former CEO of AIB. “I think it’s inevitable that you will see some stress, but we see that as returning to a more normal cycle of stress.”

Total operating income for the year ending September 30th rose 11 per cent to £1.8 billion, in line with analysts’ expectations, and Virgin’s net interest margin – the difference between the interest it receives on its loans and the rate it pays for deposits – rose to 1.85 per cent from 1.62 per cent in 2021.

The bank also increased its guidance for net interest margin (Nim) to 1.90 per cent for 2023, from 1.85 per cent and ahead of consensus of 1.86 per cent.

Impairments for bad loans were £52 million, a swing from a release of £131 million taken in 2021 for the coronavirus pandemic and slightly below analyst estimates of £79 million.

“This is a broadly positive update from Virgin Money UK and should be well received by the market,” said analysts at Goodbody. Guidance on costs to implement a digital strategy remained unchanged at about £275 million, with the majority now expected to be spent in the next year.

While overall costs were largely unchanged from 2021, staff costs rose 8 per cent to £375 million, driven by wage increases and a cost-of-living allowance as well as more spending on digitisation.

Despite strong credit quality, customers are showing signs of behavioural changes driven by the cost-of-living crisis, with inflation at a 41-year high of 11.1 per cent in October.

Spending on groceries rose about 16 per cent and energy bill spending was up about 57 per cent, said Mr Duffy, with a slight increase in customers using credit cards to purchase essentials.

– Copyright The Financial Times Limited 2022