The Virgin Money UK CDI (ASX: VUK) share price is leaping 13.19% right now after the S&P/ASX 200 Index (ASX: XJO) bank dropped its financial year 2022 (FY22) earnings and news of more share buybacks last night. Right now, stock in Virgin Money is trading at $2.875 apiece.
Shares in ASX 200 bank Virgin Money soar on results and buyback
Here are the key takeaways from Virgin Money's FY22 earnings. All figures have been converted from pounds sterling at today's exchange rate (1 pound to $1.79 AUD).
- $1 billion after-tax profit – a 43% year-on-year increase
- $2.8 billion of underlying net interest income – a 13% lift
- Underlying operating income came to $3.1 billion – up 12%
- Net interest margin (NIM) lifted to 1.85% for the full year, and 1.86% in the final quarter
- 7.5 pence (13 cents) final dividend – up from last year's 1 pence (1.9 cents) final dividend
- Announced an $89.5 million share buyback
Virgin Money's total customer lending lifted 0.8% over the 12 months to September, reaching $130 billion while the bank's underlying cost-to-income ratio (CIR) fell to 52%.
It said its higher NIM was due to rising rates and mix optimisation. It also reported record growth in current account sales and new credit card origination.
Additionally, the bank delivered $123.5 million of annualised gross savings and has committed to a "sustainable" 30% payout ratio.
Its CET1 ratio was "strong" at 15% while its cost of risk came in at 7 basis points.
What else happened in FY22?
The ASX 200 bank also pushed forward with its digital strategy in FY22. It automated 43% of key customer journeys and expanded its loyalty and reward programs.
While Virgin Money wasn't directly exposed to the conflict in Ukraine, it was impacted by resulting higher costs, interest rates, and pressure on its customers and asset quality.
The company also announced a near-$90 million share buyback targeting its stocks listed in both London and Australia last night. The buyback is set to start today and acts as an extension to the slightly larger buyback announced in June.
What did management say?
Virgin Money CEO David Duffy commented on the results driving the ASX 200 bank stock higher today, saying:
2022 has been a milestone year for Virgin Money. We have good momentum while delivering a strong performance and improved returns for our shareholders.
We've changed the game in purpose-led flexible working to create an engaged, high-performing organisation that's cost-efficient and agile, which will underpin targeted growth through further digital innovation.
While we have solid credit quality across our lending, we are aware that some customers will have to make difficult decisions in this environment, and we are proactively offering them help and support.
What's next?
The company expects its NIM to be between $1.85% and 1.9% in FY23. Meanwhile, its CIR is tipped to improve to around 50% with further falls targeted for FY24.
It hopes to maintain its CET1 at above 14% this financial year amid macroeconomic uncertainty, with the measure set to return to its targeted 13% to 13.5% in FY24. It also anticipates its cost of risk to normalise around the cycle level of 30 basis points to 35 basis points.
The company's digital wallet is expected to be launched in early in 2023 with more functionality to be added through the year.
Finally, the bank is targeting growth in Unsecured & BAU Business lending, which is tipped to moderate in 2023. It hopes to maintain its mortgage market share in the medium term.
Virgin Money share price underperforms ASX 200 in 2022
Today's gains haven't been enough to boost the ASX 200 bank share back into the longer-term green.
The stock has tumbled more than 16% in 2022 so far. It's also currently 13% lower than it was this time last year.
For comparison, the ASX 200 has fallen 5% year to date and 2% over the last 12 months.
