Paragon profits as business boosted by buy-to-let demand
SOLIHULL-based finance group Paragon has said its performance remains in line with expectations as the business continues to benefit from the strong buy-to-let sector.
In a trading update covering the period from October 1, 2015 to date. The company said underlying operating profits (before fair value items and acquisition related costs) had seen a near 14% rise to £35.2m (2014/15: £30.9m).
This figure excludes costs of £2.2m incurred with the group’s acquisition of the Five Arrows Leasing Group in November. Net of these expenses, operating profits were £33m for the period. Pre-tax profit, after a credit of £0.9m for fair value hedging items, was £33.9m for the period (Q1 2015: £30.2m), an increase of 12.3% including the absorption of costs associated with the acquisition.
The group’s capital base is said to be strong, reflected by its Core Tier 1 ratio which stood at 16.8% at December 31, 2015 and its leverage ratio of 7% at the same date.
The board said it remained committed to its strategy of improving shareholder returns through its four key levers of organic growth, further diversification, M&A activity and capital management. The acquisition of the Five Arrows Leasing business, Paragon Bank’s retail deposits exceeding £1bn during the quarter and the re-levering of Idem Capital are each highlighted as notable steps in executing this strategy.
It said the buy-to-let market had seen strong growth in recent years, driven by increasing levels of tenant demand. The fiscal and regulatory changes and proposals, introduced over the last six months, may soften the rate of growth for buy-to-lending as time progresses towards their full implementation in 2021. However, it predicts demand for rental properties will remain strong for the foreseeable future.
The changes are likely to result in an increasing trend towards investment by professional landlords, it adds, a customer group where Paragon already has extensive experience.
Nigel Terrington, Paragon’s chief executive, said: “I am delighted with yet another strong financial performance by the group which has been achieved alongside further significant progress in our diversification strategy.
“Paragon Bank has passed through the milestones of £1bn of deposit balances and on a monthly basis is in profit, less than two years after launch. The acquisition of Five Arrows Leasing is an exciting prospect and we believe it will provide a platform for further growth into the future.
“Our buy-to-let lending continues to display an exemplary credit performance and whilst the recent and proposed changes may soften the rate of growth in the sector, the drivers supporting the long term structural changes in the housing market remain as valid today as they have over the last three decades.”
