MARKET REPORT: Paragon reports strong momentum in buy-to-let business as demand from landlords continues to grow
02-03-2014
By Geoff Foster
Many thought the credit crunch and the recession had put paid to buy-to-let mortgages. Not so.
Buy-to-let lenders have since proved to be the unintended winners from the emergency slashing of interest rates by the Bank of England to record lows.
While charging thousands of pounds in rent, their interest-only mortgage deals charge just hundreds of pounds.
A computerised display of the FTSE 100 index
At the same time, the ability of banks to service this relatively new market was undoubtedly saved by the Government’s mega bailout of British banks.
Specialist lender Paragon yesterday reported strong momentum in the buy-to-let business as demand from landlords, particularly in London, continues to grow.
It saw increased lending of £140.2m in the first quarter – a massive 207 per cent increase on the same period last year.
The mortgage pipeline was a healthy £222.5m at the end of December 2013. Its shares touched 365p before drifting with the general trend to close 3.2p better at 351.1p.
Gary Greenwood, analyst at Shore Capital, increased his 2014 new business lending estimate to £600m from £550m and for 2015 to £700m from £600m. He also raised his 2014 pre-tax profit forecast 2 per cent to £117.8m and by the same amount to £132.7m for 2015.
He remains a buyer of Paragon and believes the company has a growing number of investment opportunities that will continue to drive strong earnings growth and enhance return on equity.
A nervy and volatile Footsie traded more than 100 points lower before rallying late to finish 28.01 points off at 6,510.44, taking its decline on the month to around 4 per cent for its worst January performance since 2009.
The FTSE 250 was 136 points off at one stage but ended 27.43 points lower at 15,674.37. Weaker-than-expected inflation data in the eurozone, slowing Chinese growth, the withdrawal of a further $10bn of US monetary stimulus and ongoing concerns about emerging markets had fund managers dumping blue chips ahead of the weekend.
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FTSE CLOSE: Footsie tumbles as eurozone deflation fears add to emerging market worries
Wall Street’s opening 199-point fall certainly made up some minds to say cheerio.
Followers of the drinks sector were in need of a stiff tipple or two to calm nerves as Coca-Cola led the retreat with a fall of 54p to 1613p. Peroni brewer SABMiller dipped 13p to 2740p.
Thursday’s major casualty, Diageo, slumped 19.5p more to 1800.5p following further consideration of its disappointing half-year update. It made Goldman Sachs remove the stock from its Conviction Buy list and downgrade to ‘neutral’. All the drink majors have substantial exposure to emerging markets and could remain under pressure until the crisis blows over.
Ubiquitous broker Goldmans puffed clients into Lambert and Golden Virginia group Imperial Tobacco, 41p better at 2223p.
It added the stock to its Conviction Buy list, saying the cigarette maker could return £8.8bn of cash to shareholders over the next four years.
Recently Imps was dragged lower after the South China Post reported the introduction of a nationwide ban on smoking in public places by the end of the year. China has some 300m smokers and is the world’s largest consumer of tobacco.
Online grocer Ocado cheapened 11p to 523p as investors took profits ahead of Tuesday’s annual results. A trading update in January revealed that fourth-quarter sales grew by 20 per cent.
Nervous selling amid rumours that another profits warning could be just around the corner left microchip designer Imagination Technologies 5.8p down at 172.5p. The company, whose graphics technology is used in iPhone microchips, and which relies on the iPhone and iPad for more than 33 per cent of its revenues, warned in December about a slowdown in the smartphone market. Its shares then plummeted 24 per cent.
Worries about another earnings alert increased after Apple, its biggest customer, this week reported disappointing quarterly figures. It sold a record 51m iPhones in the quarter, boosted by the launch of the 5c and 5s iterations, but that was well short of analysts’ expectations of 55m. The board also gave a downbeat guidance in the current quarter.
Private equity takeover rumours helped shares of Domino’s Pizza sizzle 14.5p higher to 528.5p. It certainly wasn’t news that former Halfords boss David Wild has been installed as chief executive that got buyers interested. One fund manager said: ‘After his disastrous performance at Halfords, Wild would not be in my top 100 candidates for the job.’
SkyePharma jumped 15.5p to 134p after the oral and inhalation drugs group forecast full-year 2013 revenue and operating profit ‘materially ahead of market expectations’.
BAE Systems declined 6.9p to 429.1p after Barclays downgraded to ‘underweight’, with a target price of 380p. It does not see a compelling organic growth story as a result of stalling Typhoon exports and high exposure to declining US Army budgets.
There is a limit to the cuts the group can endure, especially in R&D, to support its competitive position and future growth prospects.