Virgin Money shares rise as rising interest rates and credit card sales drive healthy profit growth
- The financial services company saw its shares rise 11.8% to 162.75p
- Profit growth was boosted by a £180m rise in interest income
- Strong demand for mortgages and credit cards also boosted company profits
Shares of Virgin Money UK climbed the most of any company on the FTSE 350 on Monday morning after the lender reported bumper annual results following successive base rate hikes.
The financial services company saw its shares rise 11.8% to 162.75p as it revealed statutory profits rose 13% year-on-year to £537m in the year ended ending in September.
Profit growth was boosted by a £180m rise in net interest income, around half of which was related to liquid assets, with trading further supported by high levels of unsecured and mortgage lending.
Profitability: Virgin Money’s profit growth was boosted by a £180m rise in net interest income and high levels of unsecured and mortgage lending
The Bank of England raised the UK’s interest rate six consecutive times during the period, to tackle soaring inflation caused mainly by rising energy and food costs .
This resulted in a boon for UK banks, although they also benefited from continued strong demand for mortgages as house prices continued to hit even higher highs.
Total lending at Virgin Money rose 0.8% to £72.6bn, buoyed by record credit card sales and a rebound in consumer spending after tough lockdown restrictions on the previous year led non-essential stores to temporarily close.
Profitability also benefited from the lower cost of adjusting items, such as restructuring charges related to the group’s digital investments and payment protection insurance reimbursements.
Lower costs helped offset a £52million impairment charge the company took on to cover possible defaults as it warned of a more uncertain economic outlook.
David Duffy, Group Chief Executive, said: “Following a positive recovery in post-Covid expectations, recent events have seen forecasts deteriorate.
“As we enter a more volatile environment, with higher inflation and rates, we are carefully monitoring any impact.”
Still, the former Clydesdale Bank boss said the company had “a prudently underwritten loan portfolio, strong coverage and a defensive asset mix” and was “ready and able to continue to support customers, colleagues and communities.” [it] serves.’
The strong performance saw Virgin Money announce £267m in dividends and share buybacks for investors, having returned just £14m to investors in financial year 2021.
Alongside this, the Newcastle-based company today said most of its 7,500 staff would receive a 10% supplement to their salaries to help them cope with worsening inflation.
The first payment will be made in January, the second following in July and will be in addition to a £1,000 cost of living payment made in August.
Russ Mould, Chief Investment Officer of AJ Bell, said: “Virgin Money’s better-than-expected dividend and buyout is good news in itself, but is also crucial for what it says about management’s confidence in business prospects.”