UBS upgrades CYBG, sees improvement in net interest margin
CYBG got a boost on Monday as UBS upgraded its rating on the shares to 'buy' from 'neutral', arguing that net interest margin is set to rise even in the current rates environment.
UBS noted that CYBG shares are down around 30% since the company's trading update at the end of July, underperforming the sector by about 20% and UK banks by 15%.
Over the same period, consensus earnings per share has fallen 16%, suggesting a 17% de-rating, with one-year forward consensus price-to-earnings falling to 5.3x and P/E discount to the sector and UK banks widening to 31% from 17% and 16% from 1%, respectively.
"This suggests that the sharp fall isn’t entirely explained by Brexit and we think the market expects further EPS cuts on expectations that net interest margin will continue to shrink in 2020.
"We see this as unlikely and model a rising NIM from 2020e, with EPS rising from 2021e on expanding NIM and cost savings."
UBS said it sees "decent" upside potential when CYBG gives new NIM guidance in three months' time.
The bank cut its price target on the stock to 170p from 195p.
At 1000 BST, the shares were up 5.1% at 148.90p.