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European markets closed lower in Friday’s trading session with FTSE-100 index, CAC 40 index, DAX index and STOXX 600 index lost 142.19 points, 75.95 points, 194.28 points, and 5.11 points, respectively. In this article, we would focus on some compelling initiatives as unveiled by Investec PLC and Virgin Money UK PLC lately:
- INVP has taken strategic actions to simplify the operational performance and results remained in line with its interim results.
- VMUK has witnessed growth in the client base and continue to implement Basel III framework to regulate operational risk and credit risk.
- Both the companies were eligible to use several stimulus packages as introduced by the Government, such as - Coronavirus Job Retention Scheme, Coronavirus Business Interruption Loan Scheme and Covid Corporate Financing Facility to safeguard the markets and business operations.
Today, we will share some insights about two Financials stocks: Investec Plc (LON:INVP) and Virgin Money UK Plc (LON:VMUK). On Friday, both stocks traded in red zone as INVP was down by 11.12 per cent (closed at GBX 145.80) and VMUK fell significantly by 11.04 per cent (closed at GBX 89.14). Now, we will turn our attention towards the business model, strategic updates, Corporate Structure, Key Brands, the financial and operational performance so as to better gauge on the business outlook scenario.
Investec PLC - Offering Financial Products and Services in Multiple Geographic Regions
Investec PLC (LON:INVP) is a London, United Kingdom-headquartered specialist bank and asset manager. The Group offers a range of financial products and services to a selective client base. It primarily operates in the UK and Europe, Asia-Pacific and Southern Africa, employing more than 10,000 people worldwide. While the company entered the United Kingdom in 1992, it was founded in South Africa in 1974. Through a combination of considerable organic growth and strategic acquisitions, it has expanded from a small finance company to one of the biggest international financial group trusted to manage assets worth more than £150 billion.
Investec PLC Corporate Structure
(Source: Company Website)
Investec Plc offers Wealth & Investment Services, Private Banking Activities, Corporate and Investment Banking activities, corporate advisory and investment activities and other activities through Investec Bank Plc. Investec Bank Ltd (Channel Islands) provides Wealth & Investment Services and Private Banking Activities. Investec Wealth & Investment Ltd provides Wealth & Investment Services. Investec asset finance Plc provides Corporate and Investment Banking activities.
Financial Highlights – Improved Financial Performance in FY2020 (31st March 2020, GBP, thousand)
- For the financial year ending 31st March 2020, due to an increase in the interest income, the net interest income stood at GBP 853,004 thousand as against GBP 816,649 thousand in FY2019. The operating income stood at GBP 1,673,538 thousand for the period.
- The Group’s operating profit declined from GBP 529,124 thousand in the financial year 2019 to GBP 336,205 thousand in the financial year 2020. The pre-tax profit from continuing operations stood at GBP 310,480 thousand, while post-tax profit from continuing operations stood at GBP 277,483 thousand for the period.
- The Group’s Profit after tax (continuing and discontinued operations) stood at GBP 1,232,462 thousand in FY2020 versus GBP 618,181 thousand in FY2019.
- The earnings per share (continuing and discontinued operations) surged to 115.3 pence in the financial year 2020 versus 52 pence in FY2019. The diluted earnings per share (continuing and discontinued operations) increased to 114.4 pence in FY2020 versus 50.9 pence in FY2019.
Share Price Performance Analysis
Daily Chart as of 29th May 2020, after the market closed (Source: Refinitiv, Thomson Reuters)
On 29th May 2020, shares of Investec Plc closed at GBX 145.80. Stock's 52 weeks High is GBX 407.22 (on 1st July 2019) and Low is GBX 122.55 (on 19th March 2020). Total outstanding market capitalization stood at around GBP 1.46 billion. Trailing twelve months earnings per share stood at GBP 0.3976 (at the time of writing).
Actions taken to Improve Operational Performance
The group’s financial performance has improved in the FY2020. The top-line performance and the bottom-line performance have increased for the period, while operating profitability declined. The Company has taken strategic actions such as restructuring, closing and sale of certain businesses to simplify the operational performance and its adjusted operating profit remained in line with interim results. Investec has demerged its asset management business and has been listed separately. The market in which the company operate is full of economic and social impact due to covid-19 pandemic. At present, the company is not able to measure the impact of the outbreak and did not disclose any future guidance and has been taking actions to control expenses and safe cash to tackle the uncertain times.
Virgin Money UK Plc – Providing Financial Services to large Customer Base using Different Brands; Robust Balance Sheet Position
Virgin Money UK Plc (LON:VMUK), formerly called as CYBG PLC, is a financial services company that indulges in the business of providing solutions in the space of financial services as well as banking. The Group, through its digital-first approach, serves 6.4 million customers in the UK and offers mobile and online services, telephone banking and branch banking. The Group has divided its business into four brands, Virgin Money, B, Yorkshire Bank and Clydesdale Bank.
Clydesdale Bank
Clydesdale Bank provided support and innovation to communities and industry and was established in the year 1838 Glasgow. It is identified as one of the largest banks in Scotland and has 62 branches with a network of private banking centres and business centres.
Yorkshire Bank
Yorkshire Bank has its head office in Leeds and was founded in the year 1859 in Western Yorkshire based Halifax. The bank has 22 private banking centres and business centres with 84 branches in the Midlands and the north of England.
Virgin Money
Virgin Money offers a variety of services such as protection products, investments products, pensions products, currency services, current accounts, credit cards, mortgages services and savings accounts to customers in the UK.
Financial Highlights – H1 FY2020 with Well-positioned Balance Sheet
(Source: Interim Report, Company Website)
- In the first half of the financial year 2020, the Company reported deposit growth of 1.4 per cent to GBP 64.7 billion and loan growth of 0.3 per cent to GBP 73.2 billion. Business lending growth was of 5.7 per cent in first half of the financial year 2020 to GBP 8.3 billion,and Personal lending growth was of 6.2 per cent to GBP 5.3 billion.
- NIM (net interest margin) in the H1 period stood at 1.62 per cent, which remained within the guidance range and was 1.63 per cent in the second quarter of the financial year 2019.The company also stated that asset mix benefits more than counterbalanced the mortgage impact in H1.
- The group’s total underlying operating income declined by 3 per cent to GBP 817 million in the first half of the financial year 2020 versus GBP 843 million in the financial year 2019. Led by the expected NIM compression, the pre-provision operating profit decreased by 3 per cent to GBP 352 millionin the first half of the financial year 2020 from GBP 363 million in the financial year 2019.
- On a YoY basis, the underlying profit was down by 58 per cent to GBP 120 million in the first half of the financial year 2020 versus GBP 286 million in the first half of the financial year 2019,driven by a COVID-19 impairment charge.
- The statutory pre-tax loss stood at GBP 7 million in the first half of FY2020 versus a proforma pre-tax profit of GBP 9 million in H1 FY2019. The statutory post-tax profit stood at GBP 22 million in the first half of FY2020 versus a proforma post-tax profit of GBP 9 million in H1 FY2019.
- The Group delivered good progress on PPI (payment protection insurance) processing. The CET1 ratio declined to 13 per cent in H1 of the financial year 2020.
Share Price Performance Analysis
Daily Chart as of 29th May 2020, after the market closed (Source: Refinitiv, Thomson Reuters)
On 29th May 2020, shares of Virgin Money UK Plc closed at GBX 89.14. Stock's 52 weeks High is GBX 222.10 (on 13th December 2019) and Low is GBX 46.10 (on 23rd March 2020). Total outstanding market capitalization stood at around GBP 1.28 billion. Trailing twelve months earnings per share stood at negative GBP 0.1905.
Supporting Clients to Achieve Financial Goals
In a tough market, the group’s performance has also stayed on track. However, the Company continues to emphasis on supporting the clients, meeting the medium-term financial targets, and delivering on the strategic priorities. The Bank is delivering growth in client balances across personal and business and attracting relationship deposits. Implementation of the Basel III framework continues, seeking to improve the comparability of capital ratios, with changes to the standardised approach to credit risk, operational risk, and the introduction of an RWA output floor. MREL implementation also continues, with financial institutions busy issuing qualifying debt to meet their requirements. At present, the group is not able to quantify the impact of coronavirus.
