Shares in Virgin Money tipped as a ‘buy’ for strong growth potential

11 July 2017

Long-term investors willing to take a degree of risk may want to consider buying shares in Virgin Money, experts recommend.  

Graham Spooner, investment research analyst at The Share Centre, believes the challenger bank, which provides residential mortgages, savings, credit cards, and currency products, could have strong growth potential.

“Interested investors should note that management has highlighted the enhancing of Virgin Money’s digital capability which could be transformational for the business in the future. Investors should appreciate that Virgin Money is not looking to have a big high street presence, as technology has changed the way we and especially younger people bank thanks to better IT systems, which in turn should enable it to grow market share,” he says.

He adds: “Encouragingly, the firm’s customer base is growing at around 35,000 a month.”

Mr Spooner also points to encouraging annual results posted by the bank earlier this year. “In its full-year results in February the company reported that it beat market expectations for growth in mortgages, savings and credit cards as underlying profits increased by 33% to £213.3 million,” he says.

According to investment platform Interactive Investor, which is also Moneywise’s parent company, Virgin Money’s share price stood at 298.35p at the time of writing. This is up from its five-year low of 214.9p recorded in July 2016, but down on its five-year high of 453.9p recorded in June 2015. Virgin Money has a dividend yield of 1.7%, which means it pays income to investors, but not as much as some other companies listed on the London Stock Exchange.

Lee Wild, editor of Interactive Investor also believes that Virgin Money could be good value. He comments: “Virgin Money has not had an easy ride since it floated in 2014, and concerns around the impact of Brexit and the strength of consumer demand mean its share price remains below levels seen before the EU referendum.”

“However, volume growth continues to far exceed any increase in costs and there’s plenty to go for in terms of mortgage and credit card business. Virgin Money reported market-beating growth in mortgages, savings and credit cards in 2016, and there appears little to worry about in terms of credit quality.

“If Virgin Money can deliver the 17% annual growth over the next three years predicted in some quarters, the current valuation of eight times earnings estimates for 2017 appears good value.”

In addition, while other challenger banks may take your fancy, Mr Spooner views Virgin Money as a “safer option” and one that “will be snapping at the heels of the bigger banks”.

In June we explained Why Vodafone is a buy for income seekersAt the time of writing on 12 June, Vodafone was trading at 223p. On 10 July it was trading at 220p. If you bought when we recommended and sold your shares now, you would lose money.

Company shares can be volatile and you should be prepared to hold them for a long time, five years or more. You should also spread your money between shares in several different companies, preferably at least 20 or hold shares alongside funds, such as Moneywise’s First 50 Funds.

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