Berenberg ups target for OSB despite H1 woes

Shares of the lending and retail savings company have risen nearly 20% over the past month after plummeting in early July following a trading update which revealed a £160-180m adverse effective interest rate adjustment would be seen in OSB's first-half figures. OSB said the adjustment was a result of buy-to-let investors refinancing their loans earlier – and so spending less time on the higher reversion rate than expected – compared with previously observed behavioural trends.

On Thursday this week, the group officially reported its interim results, showing a 73% drop in statutory profit before tax to £76.7m, and a 72% decline in basic earnings per share to 12.8p.

"Changes to OSB Group’s net interest income accounting, which led to a revenue adjustment during H1, have exacerbated scepticism about the bank’s underlying strength," explained Berenberg analyst Peter Richardson.

"While these concerns are understandable, we believe that this is an isolated event. The bank’s H1 results also further demonstrate the underlying resilience of its pricing power, growth capacity and asset quality. We believe that these sources of resilience remain undervalued."

Berenberg has lifted its target price for the shares from 650p to 700p and reiterated its 'buy' recommendation.

By 1055 on Friday morning, the stock was up 1.4% at 396.6p.