Paragon Banking buys Titlestone from Oaktree Capital for £48m

Paragon Banking Group has bought residential development finance provider Titlestone Property Finance for around £48m and a portfolio of development finance loans for approximately £226m.

Both Titlestone and the portfolio of loans were owned by funds controlled by Oaktree Capital Management.

Paragon said the development finance market is "particularly attractive", with strong long-term growth prospects. It benefits from strong underlying demand based on the shortage of housing in the UK and requires a specialist focus on customer requirements, risk assessment and in-life portfolio management.

The group said the acquisition of Titlestone will extend its current development finance business, accelerating and broadening the proposition while maintaining Paragon's strong controls and credit focus.

In the year to June 2018, Titlestone advanced £274m of new funds to its developer clients.

Chief executive Nigel Terrington said: "This acquisition demonstrates our continued progress in diversifying the group's income streams into specialist lending markets. The UK development finance market represents an excellent long-term opportunity and Titlestone will enable us to accelerate our growth in this area.

"The management team have an outstanding track record and the business is a strong cultural and operational fit with our existing development finance business and the wider group."

The Titlestone team will be combined with Paragon's existing residential development lending activities under the leadership of Robert Orr, managing director of Titlestone and support services will be provided from Paragon's existing operations.

Paragon also gave a very brief update on Tuesday, saying it continues to trade in line with the board's expectations.

Shore Capital said: "We view the transaction as being consistent with management’s strategy of diversifying the group’s loan portfolio and expect the headline earnings accretion to be welcomed by the market. The shares have been relatively weak since the group reported interim results in May and currently offer 26% upside to our fair value of 590p (before taking account of the impact of the acquisition). We therefore re-iterate our positive stance."

Peel Hunt said this is a good bolt-on acquisition for Paragon, further diversifying the business and utilising the strength of the balance sheet to enhance earnings.

At 0845 BST, the shares were up 1.7% to 478.60p.