Investec upgrades OneSavings Bank to 'buy'

It said the drop in the share price, which is down 9.2% since 23 May, has coincided with a share placing and fresh crop of headlines anticipating the demise of the buy-to-let market, or claims that the demise is already well underway.

"We suggest that this all rather misses the wood from the trees - OneSavings’ own experience points to record originations in H1 2017, improving margins and (of course) the not-so-thorny 'problem' of an expanding 'capital surplus' to deploy or return. We have no option but to upgrade back to buy."

The brokerage pointed out that since the 1 April 2016 stamp duty changes, industry-wide buy-to-let lending for new purchases has fallen to £0.8-1.0bn per month, while the re-mortgage flow of £1.8-2.2bn per month has remained steady. However, this decline conceals an emerging redistribution of flow towards "professional” or “complex” buy-to-let, which specialist lenders are best-placed to meet, it said.

In addition, it noted that against a backdrop of increasingly competitive asset pricing in much of the UK mortgage market, OneSavings has been selectively increasing its pricing, at least in the short term, to contain flows.

Investec said its current forecasts fail to assume full deployment of the company's capital surplus, so additional upside potential remains. Its forecasts are 3-6% ahead of Bloomberg consensus through 2017-2019.

At 1000 BST, the shares were up 0.6% to 429.60p.