Graham Spooner, investment research analyst at The Share Centre, explains why Virgin Money is share of the week:
Virgin Money, a leading UK challenger bank which focuses on the domestic customer, is this week’s share of the week. In July the company, which provides residential mortgages, savings, credit cards and currency products, received a boost from the Prudential Regulation Authority’s review on credit card lending, which was less critical than feared and did not cap interest rates.
In its full-year results in February the company reported that it beat market expectations for growth in mortgages, savings and credit cards as underlying profits increased by 33% to £213.3m. Interested investors should note that management highlighted the enhancing of its digital capability which could be transformational for the business in the future.
The outlook for banks remains mixed, but investor appetite for the sector has increased over the last year. Investors should appreciate that Virgin Money is not looking to have a big high street presence, as technology has changed the way we and especially younger people bank thanks to better IT systems, which in turn should enable them to grow market share. Encouragingly, the firm’s customer base is growing at around 35,000 a month.
Although there are other challenger banks we regard the company as a safer option and one that will be snapping at the heels of the bigger banks. Therefore, we recommend Virgin Money as a ‘buy’ for those seeking a long-term investment and willing to accept a medium level of risk.