Virgin Money UK shares soared the most of any FTSE 350 firm on Monday morning after the lender reported bumper annual results on the back of successive base rate hikes.
The financial services company saw its shares expand by 11.8 per cent to 162.75p as it revealed statutory profits grew by 13 per cent year-on-year to £537million in the year ending September.
Earnings growth was boosted by a £180million rise in net interest income, about half of which was related to liquid assets, with trading further supported by strong levels of unsecured and mortgage lending.
Profitability: Virgin Money’s earnings growth was boosted by a £180million rise in net interest income and strong levels of unsecured and mortgage lending
The Bank of England increased the UK interest rate on six consecutive occasions during the period, in order to combat surging inflation caused mainly by higher energy and food costs.
This has led to a windfall for UK banks, though they have also benefited from persistently high demand for mortgages as house prices continued to reach even greater heights.
Total lending at Virgin Money increased by 0.8 per cent to £72.6billion, buoyed by record credit card sales and a rebound in consumer spending after the previous year’s harsh lockdown restrictions led non-essential stores to temporarily close.
Profitability also received an uplift from the lower cost of adjusting items, such as restructuring charges related to the group’s digital investments and payment protection insurance refunds.
The lower costs helped offset a £52million impairment charge the business took out to cover possible defaults as it warned of a more uncertain economic outlook.
David Duffy, the group’s chief executive, said: ‘Following a positive recovery in expectations post-Covid, recent events have seen forecasts deteriorate.
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‘As we enter a more volatile environment, with higher inflation and rates, we are carefully monitoring for any impacts.’
Yet, the former Clydesdale Bank boss said the firm had ‘a prudently underwritten loan book, robust coverage, and a defensive asset mix’ and was ‘ready and able to continue supporting the customers, colleagues and communities [it] serves.’
The robust performance meant Virgin Money was able to announce £267million in dividends and share buybacks for investors, having returned just £14million to investors in the 2021 financial year.
Alongside this, the Newcastle-based company declared today that most of its 7,500 employees would receive a 10 per cent top-up on their pay to help them cope with the worsening inflationary environment.
The first instalment will be handed out in January, with the second following in July and comes on top of a £1,000 cost-of-living payment handed out in August.
Russ Mould, AJ Bell’s investment director, said: ‘The better-than-expected dividend and buyback from Virgin Money are good news on their own but are also crucial for what they say about management’s confidence in the outlook for the business.’
