What is the stock?
CYBG Group is a full-service bank, with a focus on the consumer and small and medium sized enterprises in the UK. It was spun-out of NAB in 2016 and today it operates a network of 169 branches and 40 business banking centres, located mostly in the UK’s economic heartlands of Scotland, the north of England and the Midlands.
How long have you held the stock?
We have held the stock since its initial listing in 2016.
What do you like about the stock?
CYBG continues to be a well-executed cost-out story with further improvement in FY18 and is on track to drive meaningful earnings growth through delivery of its cost to income ratio by FY19. We are anticipating potential capital return as CYBG has progressed through the Advanced Accreditation process (8 out of 10 modules now complete), which would result in excess capital of £5-5.5 billion.
Further, the proposed acquisition of Virgin Money would provide a highly complementary offering (product, geographic and brand mix) and on current terms would be accretive.
How is it better than its competitors?
CYBG is classified as a “challenger” bank versus High Street majors (i.e. Lloyds, RBS, Barclays). It is one of handful of challenger banks that offers full banking services. The UK government has a policy platform to increase competition in banking and has designed policies to benefit challenger banks over high street banks. CYBG also has a strong position in core markets, such as the north of England and Scotland.
What do you like about its management?
With extensive industry background, both CEO David Duffy and CFO Ian Smith have executed exceptionally well in a challenging environment and are on track to deliver targets outlined in 2016.
What is your target price?
Our target price is $6.
At what point would you sell it?
We will take profit as the share price reaches our valuation.
How much has it added to your overall portfolio over the last 12 months?
It has added 15% over the past 12 months and over 30% since listing in 2016.
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