Investec lifts Virgin Money target price, keeps at 'buy'

Investec has reiterated its ‘buy’ rating and raised its target price to 425p from 420p on Virgin Money after the company’s full year results.

Earlier this month, Virgin reported a 53% rise in underlying profits for 2015 to £160.3m on a strong funding position and record deposit balances.

The mortgage and savings business was the key driver of profits, contributing 69% of total income last year.

“The second half posted an 11% ‘beat’ versus consensus, while guidance signalled an accelerating pace of growth in both mortgages and cards,” Investec said.

“Such volume growth remains key to driving improving operational efficiency, starkly illustrated by positive jaws in 2015 of revenues +19% with costs +5%.”

Investec said while “lower for longer” interest rates will not help profits, the stock remains cheap and further outperformance ahead is anticipated.

Investors seem to be more comfortable with Virgin’s conservative mortgage-led business with 83% of its loans being owner-occupied, the broker added.

“However, we believe it remains undervalued because the market gives insufficient credit for the sustainability and flexibility of its operating model.

“Our 2016-2018e earnings per share forecasts are 1-5% ahead of Bloomberg consensus.”

Investec predicts EPS of 32.2p in 2016 followed by 40.9p and 49.5p in 2017 and 2018, respectively.

Shares rose 1.48% to 364.10p at 1058 BST.