A ‘cheap’ banking stock takes the FTSE 250 limelight

Seen by one broker as the cheapest bank in its coverage, OneSavings Group shares have surged in the FTSE 250. But the market reaction to Savills results was not so kind.

A banking stock with “significant potential upside” excited investors in the FTSE 250 index today, but there was no hiding place for Savills (LSE:SVS) despite resilient trading.

Even though Savills boss Mark Ridley stuck by full-year guidance, his warning over a potential short-term reduction in activity as markets adjust to rising debt costs spooked the City.

Having rallied sharply since early July, shares in the property advisory firm lost all those gains today after falling 139p to 985p at the top of the FTSE 250 fallers board.

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The interim results showed a 10% decline in underlying pre-tax profits to £59.2 million, a performance in line with City expectations following staff cost inflation and higher levels of marketing spend than earlier in the pandemic.

Revenues growth of 11% reflected a 26% improvement in commercial transactions and an anticipated reduction in activity in residential markets. This shift in business focus particularly impacted the UK division, where profits fell 9%.

Savills said activity in the UK’s prime housing markets remained robust, despite constrained levels of publicly available stock. However, it added that price growth has begun to moderate in response to the rising cost of debt in particular.

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Asia-Pacific commercial transaction volumes fell 30% in the first half as the Omicron variant undermined the ongoing recovery of the region’s economy. Savills said the US is seeing “both pockets of strength and some headwinds” across the commercial real estate markets.

The shares were last night trading at 13 times forecast earnings, with broker Peel Hunt having a price target of 1,325p. It said the shares offered exposure to a global player in the real estate space, adding that Savills had delivered a solid first-half performance against a tricky market backdrop.

Trading conditions continue to be favourable for OSB Group (LSE:OSB) — better known as OneSavings Bank — as the specialist lending and retail savings group today reported a record underlying profit of £294.1 million.

This figure was up 16% year-on-year and came in 23% ahead of broker Liberum’s forecasts, driven by a strong net interest margin performance of 3.02% after a surge in the Bank of England base rate.

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Strong demand for the group’s products led to net loan book growth of 3% in the first six months of the year to £21.6 billion. Under the brands Kent Reliance and Charter Savings Bank, customers opened more than 72,000 new accounts as the retail deposit book grew to £17.9 billion.

Chief executive Andy Golding reassured on the quality of the lending book and said the company had not seen any “systemic signs of distress or early indicators of future concerns among our borrowers”.

With a record pipeline of new business and robust demand for mortgages, Golding is confident in delivering the company’s target for underlying net loan book growth of about 10% for 2022. Shares jumped 28p to 575p in the FTSE 250 index today.

Peel Hunt said trading momentum remains strong and that a current year price/earnings multiple of 6.3 times and dividend yield of above 5% were attractive, resulting in “significant potential upside” to its target price of 787p.

Liberum has a target price of 790p and said OSB remains the cheapest bank in its coverage relative to returns.