OneSavings profit up 20% in first half, beats expectations

In the six months to the end of June, underlying pre-tax profit rose to £78.4m from £65.3m in the first half of 2016, with loan book growth of 10% to £6.5bn, driven by 26% growth in gross organic origination to £1.2bn. Analysts had been expecting underlying profit of £76.8m.

Meanwhile, the interim dividend was lifted by 21% to 3.5p per share and the core tier 1 ratio rose by 0.4 percentage points to 13.7% in the first half, while the total capital ratio up 2.2 percentage points to 17.3%.

The company said it is now guiding to full-year loan book growth of high teens versus mid-teens previously, with net interest margin broadly in line with last year and the cost to income ratio broadly flat.

The challenger bank said application levels in its core businesses for the third quarter to date remain strong and its focus on professional landlords continues to position it well, with the impact of regulation, including additional requirements for specialist underwriting from 1 October 2017, expected to further shift buy-to-let activity towards its target market.

"We are mindful of the macroeconomic environment, primarily driven by uncertainties surrounding the outcome of Brexit negotiations and the potential impact on the UK economy, including some easing of house price inflation, particularly in London.

"However, we believe that our specialist underwriting capabilities are even more relevant in times of uncertainty as they give us a greater and deeper understanding of the risks that we can actively manage and price for. We manage the business prudently with careful business planning together with excellent credit risk management, and continue to focus on achieving risk-adjusted high returns in our chosen markets."

RBC Capital Markets upped its price target on outperform-rated OneSavings to 470p from 450p following the numbers, as it lifted its earnings per share estimates for 2017/18/19 by 4%/6%/4% to incorporate stronger net loan book growth, a more resilient net interest margin, and lower impairments.

At 1430 BST, the shares were up 2.1% to 399.50p.