LONDON (ShareCast) - (Sharecast News) - In her 'Inside the City' column for the Sunday Times, Emma Dunkley opened by lamenting the state of the challenger bank market, writing that instead of "shaking up" the Big Four, they had instead made an "underwhelming" impact, with Barclays, HSBC, Royal Bank of Scotland and Lloyds still dominating.
Clydesdale and Yorkshire Banking Group (CYBG) - the owner of Virgin Money - was an exception, however, being one of the only challenger firms to have the scale needed to keep its costs down.

Dunkley described the company's asset base as "chunky", with a £61bn mortgage book making up the majority of its £73bn total lending figure.

Its rival challenger Metro Bank, becoming more ubiquitous on many high streets with its flashy blue and red branches, only had a total loan book of £15bn.

Dunkley wrote that under David Duffy, CYBG managed to scale up last year through the £1.7bn acquisition of Virgin Money, with a number of analysts expecting him to go on the hunt for another acquisition target once the dust from that transaction has settled.

The Virgin Money brand was a "huge boost" to the company's ability to attract customers, with the firm expected to ditch the Clydesdale brand for its retail network, switching exclusively to the Virgin nameplate in the coming years.

Duffy was reportedly still deciding whether the Virgin moniker would be right for the group's business clients, with most of them based in the north of England and Scotland.

Many investors were looking towards an event being held for their benefit on Wednesday to provide more clues as to what the chief executive had up his sleeve in terms of strategy, with Dunkley saying that analysts were expecting even more in the way of cost-cutting, which could come in the form of a renewed focus on digital banking.

The Virgin deal was already bringing a number of benefits to the bank's bottom line, with the newly integrated firm expected to save £150m per year by 2021, although more branch closures could also be on the cards for its 237 current retail locations.

"Their record at ripping out costs is exemplary," Dunkley quoted Investec's Ian Gordon as saying.

CYBG's integration of Virgin Money was not necessarily going to be plain sailing, however, with Dunkley pointing to the problems at TSB last year after it tried to switch systems from its former parent Lloyds to its current Spanish owners Banco Sabadell.

The botched move left thousands of customers unable to access online accounts and resulted in some decent damage to the TSB brand.

Additionally, Dunkley noted that CYBG had "embarrassingly" been turned down twice for grants from the £775m RBS fund, designed to stimulate competition in the small business banking sector.

Another roadblock for the company's growth would be the fact that its lending was narrowly focussed on the UK mortgage market, with the margins in that sector remaining under pressure.

Ongoing reparations for the payment protection insurance (PPI) scandal, as well as other past "conduct issues", were also hanging over the company's share price.

"Duffy will no doubt put on a good show and broadcast the bank's grand 'fintech' ambitions," Dunkley wrote.

"Any good news would be a boost to the share price, which has slumped from 364p last August to 179p.

With shares trading below book value, and with cost-slashing on the horizon, this challenger is a buy."

Over in the Mail on Sunday, Joanne Hart began her 'Midas' column by looking at star fund manager Neil Woodford's fall from grace, noting his interest in early-stage healthcare firms had now gone from being widely praised to facing fierce backlash.

The troubles plaguing Woodford funds should not poison sentiment towards the whole industry, Hart wrote, noting that some stocks were "going from strength to strength" and should continue to see growth.

One such firm, she said, was AIM-listed Renalytix AI, which was focussed on the near-epidemic kidney disease which now affected more than 850 million people globally.

It was a disease that many sufferers would not find out they had until it was at an advanced stage, however, meaning there was some serious demand to be able to detect kidney issues earlier.

That, Hart wrote, was something Renalytix intended to do, focussing its efforts on the development of a blood test combined with artificial intelligence, to work out whether those suffering from kidney disease could live with the condition in reasonable comfort, or were more likely to develop chronic problems requiring more serious intervention.

The firm joined the AIM market in November, making some decent headway since then, but Hart said it still had "real potential" with chief executive James McCullough said to be delivering on promises.

Renalytix was based in New York - an ideal location, given 40 million Americans suffered from chronic kidney disease, and nearly $115bn is spent in the country each year just to treat it.

The number of people living with the condition was also said to be on the rise, as kidney disease was closely linked with diabetes, which remained one of the fastest growing illnesses in the world.

Renalytix had designed a product called 'KidneyIntelX', Hart wrote, which was focussed initially on diabetics, and calculated which of those patients suffering from diabetes were most at risk of developing advanced kidney problems.

It remained relatively simple for doctor and patient, with a blood test being taken from the patient and being sent to the Renalytix lab, where it was assessed and compared with data from hundreds of thousands of health records, producing an AI-assisted prognosis for individual patients.

The progress, according to Hart, had been "impressive", with the company now collaborating with US hospital group Mount Sinai - a firm with eight hospitals, millions of patients and an enviable reputation for its medical research.

A number of other partnerships had also been signed, with the company also receiving 'breakthrough device' designation for KidneyIntelX from the Food and Drug Administration (FDA) in May.

That move, Hart, said, meant the device would take the express lane through the approval process in the US, and could be launched as soon as this year.

Brokers were hopeful, too, with the company expected to deliver revenues of $3.7m in the year ending June 2020, and $19m in the 12 months after that.

It was currently making a loss, but was expected to turn a profit by the 2021 financial year, if not sooner.

"Although KidneyIntelX will start out in America, [co-founders Julian] Baines and McCullough have the UK and continental Europe in their sights," said Hart.

"They have also started work on another diagnostic product, to improve kidney transplant results."

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