Can you bank on VMUK’s share price in 2021?

Virgin Money UK’s share price has been on a rollercoaster ride over the last year, plunging 76.27% from a 52-week high at 194.25p on 13 February, to just 46.10p on 23 March as the UK entered into its first lockdown.

Jan. 22, 2021

This article was originally published on Opto – Understand What Really Moves Markets. 

It’s been a long and choppy path for VMUK’s share price since then, but the stock climbed to 153.60p on 18 November ahead of full-year earnings, before falling away as the results failed to lift investors’ confidence.

Despite the ongoing uncertainty caused by a second wave of COVID-19, the vaccines’ rollout does offer hope of better times ahead. A slow return to normality should help VMUK, which includes the Clydesdale Bank, Yorkshire Bank and Virgin Money brands, in its quest for profitability.

So, while analysts are eyeing an upturn for the bank later this year, is VMUK’s share price really undervalued?

Could move to profitability boost VMUK’s share price?

Following the bank’s full-year results on 26 November, which saw profit-before-tax tumble 77% to PS124m – and a statutory loss-after-tax of PS141m – broker Morgan Stanley trimmed its target for VMUK’s share price from 150p to 145p. This downgrade also came just a day after VMUK announced it had set aside PS501m for bad debts owing to the COVID-19 pandemic.

However, despite those gloomy figures, there may be light at the end of the tunnel for VMUK’s share price, report Simply Wall St, with the bank “bordering on break-even” according to analysts covering the stock. VMUK is predicted to have posted a final annual loss in 2020, before going on to make a profit of PS75m this year, with its FY2021 results due to be published on 24 November. Simply Wall St calculates that VMUK must grow by an “extremely buoyant” average annual growth rate of 70% to break even within 12 months.

Should the group’s actual profits fall short of estimates, which is certainly plausible in the current economic environment, investors are still likely to gain confidence in VMUK’s share price in the longer term if the bank can move the dial in the right direction, starting with next month’s Q1 trading update.

Metrics point to potential share price gains

VMUK’s share price is significantly undervalued compared to its fair value and price relative to the market, according to Simply Wall St. They reckon the current fair value for VMUK is 179.00p, which, based on Monday’s close at 136.25p, makes the shares undervalued by 31.37%.

Morningstar’s quantitative equity research paints a similar picture – they calculate that VMUK’s fair value estimate is 166.00p, 22.8% up on 20 January’s closing price.

Further underlining VMUK’s share price prospects, the stock is currently the biggest mover of 10 component stocks in RRG Momentum, a signature share basket which tracks strong relative momentum in UK stocks, created by trading professionals Julius De Kempenaer and Trevor Neil.

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