Numis leaves Paragon at 'buy' after first half results

Numis said the company’s results were “a little below our top of the range forecasts” but reiterated a ‘buy’ rating and target price of 357p, saying Paragon remains cheap being valued at 7.4x earnings.

Paragon reported a 12.5% increase in underlying profits to £71.9m in the first half, driven by a 84.6% increase in buy-to-let lending to £823.6m.

The surge in buy-to-let lending came ahead of the introduction of higher stamp duty on such purchases from 1 April.

“We see the prospect of increased pressure on buy-to-let landlords which is reflected in our estimate that Paragon Mortgages will see its profit decline 3% in 2017, 9% in 2018 and 12% in 2019,” Numis said.

Numis added that credit remains relatively tight with banks still undertaking real affordability tests. Household debt also remains down on the previous cyclical peak, although it has started to increase rapidly and bank sector leverage is much lower than pre-financial crisis levels, the broker added.

“A slowdown is possible but the Paragon share price is pricing in a lot worse.”

Shares dropped 3.68% to 311.97p at 1112 BST.