While the second largest challenger bank CYBG PLC (LON:CYBG) has lost significant value since hitting an all-time high of £320 in mid-2018, the investors are yet wondering whether the stock has reached its real valuations.
CYBG stock is down almost 47% from the all-time high that it had hit last year; the stock is currently trading around £190 – slightly higher from 52-weeks low of £186 a share. The market pundits are presenting a mixed opinion about the share price upside potential. UBS Group has issued a “neutral” rating for CYBG stock.
However, Investec has recently cut its rating from ‘Buy’ to ‘Hold’ for CYBG – with the price target £230.
Investec’s analysts say the full synergies of merger that occurred last year are not expected until the 2022 financial year. CYBG is a holding company that merged its operations with Virgin Money last year. The analyst has also highlighted concerns over the pace of merger integration, which is likely to create a negative impact on net interest margin.
CYBG management, however, looks optimistic about their future prospects and synergies. The company claims that they have been reducing the overall cost structure along with improving their operational efficiencies to take the full advantage of the merger.
The bank said, “We have made good progress in reducing its underlying operating costs in the period and remains on track to deliver its FY19 guidance of <£950m. The Group now expects to deliver a minimum £150m of annual net run-rate cost synergies by the end of FY21, vs. £120m announced previously.”
Although it’s stock valuations corrected sharply after the recent share price drop, the stock is still trading slightly higher compared to the industry valuations. CYBG shares are trading 1.68 times to sales and 39 times to earnings, relative to the industry average of 1.18 and 15 times, respectively.
The tremendous growth of emerging challenger bank industry over the past five years has helped them to become an attractive investment choice for stock market investors. However, these challenger banks are now under pressure due to increasing regulatory restrictions and controversies related to Metro Bank – the largest challenger bank in the U.K. In the case of CYBG, the market pundits have mixed opinion about the future fundamentals.