Ongoing revenue guidance upgrade

The quarter continued to enjoy stronger-than-expected revenue momentum driven by interest and, to a lesser extent, non-interest income while the asset quality trends remained benign.

Indecent profitability levels

The first-half’s profitability skyrocketed to excessive levels driven by a stronger-than-expected net interest margin widening. This performance should be repeated in the second half. It remains to be seen where the management will place the new sustainable profitability, but it is likely to be at least in the mid-teens.

Net interest margin upgrade

The first quarter enjoyed stronger-than-expected interest rate tailwinds thus enabling the management to upgrade its full-year guidance. Asset quality trends proved also more resilient, paving the way for further upgrades.

Skyrocketing margins

Like BOI yesterday, the net interest margin skyrocketed to unprecedented and hard-to-justify levels. Management now expects to meet its +13% 2024 financial objective as soon as this year. However, it is worth remembering that, contrary to BOI, it is set on CET1 (@13.5%) and corresponds in reality to a relatively unambitious +10-11% RoTE.

Slightly upgraded top-line guidance

Management slightly upgraded its top-line guidance for 2022 driven by both interest and non-interest income, while the acquisition of Ulster Bank will distort the second half materially.

Upgraded net interest income guidance

The first-quarter results were largely in line with the group’s expectations thus enabling it to qualify them as strong. The full-year guidance was upgraded on stronger net interest income largely driven by scope changes but also by the progressive support from interest rate increases.

Extra net provision releases and confirmed fee income recovery

The third quarter enjoyed further net provision recoveries and confirmed fee income recovery. The net interest margin remained under strong pressure but will benefit from a stronger TLTRO relief in Q4. The balance sheet has been positioned to benefit from interest hikes, if any.

Provision releases to the rescue

The first half of the year was impacted by heavy charges, fortunately mitigated by strong loan provision releases. Management increased its 2023 RoTE objective by 1ppt to above 9%, a demanding target that still has to be reflected in consensus or AV projections.

Full-year guidance reiterated

The quarter was in line with management’s full-year guidance, showing the first signs of a net interest margin recovery and normalisation of fee income generation and cost of risk.

The return to decent profitability levels remains a distant objective

The group managed to post almost breakeven second-half profits thanks to cost control and a sharp reduction in the cost of risk. The return to decent profitability levels remains a distant objective despite the strong planned cost reduction and the expected fast cost of risk normalisation thus evidencing structural troubles.

“One-shot” provision frontloading

Management did not hesitate to frontload the bulk of the expected annual COVID-19 impact, although the first-half pre-provision performance was affected by depressed revenue generation and a rigid cost base. The group’s recovery potential remains the big unknown.

Bottom-line losses to increase in Q2

The limited first quarter loss only partially captures the pending impact of the COVID-19-induced recession as, contrary to BOI yesterday, the group made it clear that the retained macro-economic scenario is now too optimistic.

Excess liquidity and investments weigh

The second-half showed a sharp net interest margin squeeze and a deteriorating efficiency. Management’s guidance for this year points to a confirmation of these trends. Although it is committed to offsetting accelerated investments with strong staff cuts by 2022, the viability of its above 8% mid-term RoTE objective will rely on its ability to expand the business in CIB and the UK.

Net interest margin pressure and cost inflation

The third-quarter results showed ongoing net interest margin pressure and operating expenses inflation in a context of cost of risk normalisation. Unfortunately, one will have to wait until the release of the group’s full-year results due on 6 March 2020 to know management’s action plan.

Deteriorating operating margin and increased capital consumption

The half-year results showed a net interest margin squeeze, efficiency deterioration and increased capital consumption, notwithstanding the strong pending impact of the review of the mortgage model.

Morning Note – 22 April 2024

Benefits of scale set to materialise

Frenkel Topping - Resilient with strong growth potential

FY 2023 was a challenging year for Frenkel with higher interest rates encouraging clients to place money into lower margin money market funds. Despite this, sales grew +32% (supported by recurring revenue +9% and +51% in non-recurring), EBIT margins remained strong at 22% and adj. EPS grew +17% (taking into account the higher number of shares). FY 2024 has seen a solid start to transactional business and there is a strong pipeline of new FUM opportunities both of which support further growth. Wi

S&U - PBT ahead, encouraging volume trends

S&U reported FY24 PBT of £33.6m, down from £41.4m in FY23 on higher funding and regulatory costs and higher impairments in Advantage in H2. PBT was 2% ahead of our forecast as stronger revenues – up 12% to £115.4m – and better costs offset higher-than-expected impairments. Net receivables grew to a record at both Advantage and Aspen and management noted particular strength in Q4 and a good trading environment in the current year. Having absorbed a significant rise in funding cost as well as addi

Hardman & Co Insight: 2023 was an annus horribilis for Quoted UK Infrastructure and Renewable Energy

The focus of Hardman & Co Research is on the nine quoted Infrastructure Investment Companies (IICs) and on the 22 Renewable Energy Infrastructure Funds (REIFs): the stocks analysed are all members of the Association of Investment Companies (AIC). We are updating our publication of January 2023, assessing both the lacklustre share price performances during 2023 and the key issues, including interest rates, inflation and power prices. As a 31-strong group, its combined market capitalisation is no

Foresight Solar Fund - Termination of coverage

Edison Investment Research is terminating coverage on ABC Arbitrage (ABCA), paragon (PGN), Foresight Solar Fund (FSFL), Kendrion (KENDR), Lithium Power International (LPI), Triple Point Energy Transition (TENT), 4iG (4IG), e-therapeutics (ETX), Pharnext (ALPHA) and Shield Therapeutics (STX). Please note you should no longer rely on any previous research or estimates for this company. All forecasts should now be considered redundant. Previously published reports can still be accessed via our web

International Public Partnerships - Consistently and responsibly delivering

International Public Partnerships’ (INPP’s) FY23 results show that it continues to deliver consistent and predictable returns for investors, while delivering environmental and social benefits for the individuals and communities that are served by its assets. Despite this strong performance and a substantial need for private infrastructure funding, the macroeconomic environment has weighed on INPP’s share price, in common with the wider sector. Regardless, attractive returns are available from th

Regional REIT - Performing as expected ahead of refinancing

In a challenging market, Regional REIT’s (RGL’s) FY23 operational and financial performance was robust, in line with expectations and previous guidance. Investor focus remains on the company’s loan to value (LTV) reduction and bond refinancing plans, explored in detail in our previous note and RGL will provide an update on this in due course.

LIBERUM: PayPoint: On track for £100m of EBITDA in FY 26

LIBERUM: Speedy Hire: Weakness in FY 24 but recovery in FY 25

Hybridan Small Cap Feast - 22 April 2024

22nd April 2024 * A corporate client of Hybridan LLP ** Arranged by type of listing and date of announcement *** Alphabetically arranged **** Potential means Intention to Float (ITF) has been announced Dish of the day Admissions: Delistings: What’s baking in the oven? ** Potential**** Initial Public Offerings: Reverse Takeovers: 16 April 2024: Electric Guitar (ELEG.L) Concurrent with its Admission to trading on AIM, Electric Guitar is proposing to acquire the entire issued share capital of 3radi

Witan

Business as usual for WTAN’s executive team, while the board reviews investment management arrangements…

Foxtons Group (FOXT LN) - 1Q24 IMS shows real momentum

Foxtons Group plc first quarter revenue rose 9% to £35.7m (1Q23: £32.9m) with growth delivered across all business segments. Trading is in line with management's expectations.

The Hardman & Co Monthly: April 2024

Feature article: Steady as she goes, but could be better: A review of investment company liquidity since 2016 Liquidity is the lifeblood of equity markets. The measurement of liquid asset availability to a market or company is a way of gauging a market’s health. This article builds on our previous work, which analysed the liquidity data for non-financial trading companies, by applying the same analytical techniques to the investment companies (IC) space. We analyse liquidity for ICs as a whol

H&T Group (HAT): Core franchise build, short-term retail noise

In our 15 March 2023 initiation, 'Pawnbroking royalty, with strong, profitable growth', and subsequent notes, we have highlighted the strong market for pawnbroking and why H&T, as the market leader, is uniquely placed to take advantage of these opportunities. These results reconfirmed both, with the pledge book up 28% and net pawnbroking revenue up 36%. Like many in the retail space, H&T faced the challenge of customers focusing on lower-value, lower-margin items in the key run-up to Christmas 2