Virgin Money UK: Another increase to restructuring cost guidance

About the author:

Azib Khan
Author name:
By Azib Khan
Job title:
Senior Analyst
Date posted:
05 October 2021, 10:00 AM
Sectors Covered:
Banks

  • After increasing FY21 restructuring cost guidance from c.£74m to c.£100m at the release of the 1H21 results, VUK last week revised this guidance to c.£145m.
  • The additional restructuring charges of £45m result in our FY21 statutory NPAT being downgraded by 7%.
  • Our price target is unchanged at (login to view) and we retain a Hold recommendation.

Restructuring costs raised by an additional £45m

VUK has booked an additional c.£45m of restructuring costs in 4Q21 “as the Group launches the initial actions in order to deliver on its strategic ambition to be the UK’s best digital bank”.

These initial actions consist of store closures, changes to the operating model, and greater automation.

Below-the-line charges a recurring feature

Below-the-line restructuring expenses have been a recurring feature of VUK’s results in every full year reporting period since the IPO of CYBG as can be seen from the chart on page 4.

Following the revision to restructuring cost guidance for FY21, we see increased risk of below-the-line restructuring charges continuing for some time yet. VUK will continue to keep restructuring charges below the line, meaning that these charges will be excluded from Underlying NPAT.

Forecast changes and investment view

The additional restructuring charges of £45m result in our FY21 statutory NPAT being downgraded by 7%. We continue to expect no final dividend this year.

Our price target, based on our DDM valuation, is unchanged at (login to view). Our target price for the ASX-listed CDIs is unchanged at (login to view) based on an AUDGBP exchange rate assumption of 0.55. We retain a Hold recommendation.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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