Buy, hold or sell: why we're raising our buy price for this bank


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The British bank CYBG, demerged from NAB, has performed well - but so has its share price.

CYBG: Result 2017

The turnaround of CYBG is progressing ahead of schedule.

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That's the message from its 2017 result and, while management declined to raise its targets for 2019, it said it had "added confidence in [their] delivery".

With a 3% rise in operating income and a 7% fall in operating expenses, the bank's "jaws" (being the gap between the two) weren't so much positive as gaping.

Chief financial officer Ian Smith said he felt the bank was on track to hit the lower end of its 55-58% target range for 2019.

The strong performance translated into a 33% rise in underlying net profit, despite a 23% increase in impairments to £48m (representing 0.14% of average loans, up from 0.09%).

Another highlight in the result was the performance of "B", the bank's digital offering.

Launched only last year, B has raced to 100,000 customers, with £1.1bn of deposits (a 'big chunk' of which is new to the bank according to Smith).

All up, CYBG's performance since its demerger has been impressive and there's no reason to doubt that this will continue.

However, the share price performance has also been impressive, with a rise of 51%. That puts the stock on a price to tangible book ratio of almost 1.1, which isn't cheap.

Given the improvements that have been achieved, we're raising our "buy" price to $4 (from $3.50) and our "sell" price to $6.50 (from $6) but that still leaves it closer to the latter than the former. HOLD.

Staff members may own securities mentioned in this article

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James Carlisle is the head of research at Intelligent Investor (under AFSL 282288), owned by InvestSMART Group Limited. James has been researching stocks for more than two decades. After qualifying as a lawyer and working as a fund manager in London, James moved to Australia in 2002 and soon found Intelligent Investor. He covers the banking and financial services sectors. To unlock Intelligent Investor stock research and buy recommendations, take out a 15-day free membership.