Paragon looks to the future with optimism

SOLIHULL-based specialist finance provider, Paragon is looking forward to the second half and beyond with optimism, buoyed by latest interims which show the company enjoying its best ever start to a financial year.

The company saw underlying profits increase by 10.4%, aided by a strong buy-to-let sector and new lending agreements.

Chief executive Nigel Terrington has said he expects the situation to remain as it is for a while to come; providing the company with a pipeline of new opportunities to support growth.

“The buy-to-let sector has been robust for a few years now even when the housing market has been flat. This is because the Private Rented Sector (PRS) has continued to expand, while mortgages have remained harder to come by,” he said.

“Things have been subdued in the lead up to the General Election while everyone waited to see what would happen. Now this has been resolved we expect the situation to improve.”

The company’s direction has changed somewhat over the course of the last 12 months following the setting up of its new banking arm.

Set-up costs meant the division made a loss in the past six months but this had been expected. Now the bank is on course to meet expectations and break even sometime next year.

“The bank is ahead of expectations in terms of flow of new business. It is supported by new product offerings in car finance, mortgage and buy-to-let,” said Terrington.

More encouragingly, the bank continues to provide the business with further opportunities for diversification.

“The UK deposit market is worth something like £1.8 trillion and so we are keen to get a share of that. Prior to setting up the banking arm, Paragon was essentially a bank that did not take deposits. We have now injected management into the business in the form of IT, HR and marketing,” he added.

The group is looking to expand the product offering but this probably won’t happen this year. One of the options being considered is development finance; a move deliberately designed help the UK alleviate its housing crisis.

There is also a significant pipeline of opportunities within Idem Capital and the group will be looking to strengthen the division’s operation by acquiring fresh bundles of debt should suitable packages become available.

The business itself now employs just over 1,000 people at its two sites – one in Solihull, one in Shirley – but it still has around 100 vacancies, which it is actively trying to fill.

Terrington said the business had spare capacity within its existing buildings and was looking to recruit the people it needed, although he admits the process can be a little slower than he would like.  

The optimism is shared by UBS, which said: “We think Paragon’s volumes will be helped by the structural tailwinds behind the broader buy-to-let (BTL) market. The private rented sector continues to be an increasingly important source of housing; moreover, in our view, buy-to-let is punching below its weight in funding private rented housing, which remains under-levered relative to the UK average.

“We also expect Paragon to start increasing its share of BTL stock in 2015 as its lending rises closer to levels in line with its natural share. We modestly upgrade our BTL volume estimates for Paragon to reflect this stance.”