LONDON (ShareCast) - (Sharecast News) - OSB Group tumbled on Thursday as full-year profits beat expectations but guidance on net interest margin disappointed.
Underlying pre-tax profit fell to £426m from £591.1m a year earlier, while statutory pre-tax profit was down 30% to £374.3m.

OSB said that as in the first half, the full-year results were "significantly" impacted by the adverse effective interest rate (EIR) adjustment, relating mainly to a shorter time spent on the reversion rate by its Precise Mortgages customers.

"Since then, their behaviour has remained broadly consistent with the circa five months spent on reversion rate assumption," it added.

Mortgage holders coming to the end of fixed-term deals often spend some time on a variable rate, or reversion rate - which is linked to the Bank of England's base rate - before moving to a new deal.

During the year, the underlying and statutory net loan book increased by 9% to £25.7bn and £25.8bn, respectively. OBS said this was supported by organic originations of £4.7bn, down from £5.8bn a year earlier.

Chief executive Andy Golding said: "The group performed well in its core market segments in 2023, growing its share of the Buy-to-Let sub-segment to deliver 9% net loan book growth against a backdrop of a subdued wider mortgage market.

"The group's target professional landlords continue to demonstrate resilience, supported by high levels of demand in the Private Rented Sector, long-term income improvement and a reduction in the cost of borrowing towards the end of the year. Our fair and attractively priced savings products were popular and we grew our retail deposits by 12% in the year."

The company also announced that chief financial officer April Talintyre will retire at the annual general meeting on 9 May. Deputy CFO Victoria Hyde will become acting CFO while OSB searches for a replacement for Talintyre.

Looking forward, OSB said that based on current application volumes and against the backdrop of a "subdued" mortgage market, it expects to deliver underlying net loan book growth of around 5% for 2024.

The underlying net interest margin is expected to be "broadly flat" to the 2023 underlying NIM of 251 basis points, "reflecting the impact of a higher cost of funds and the full year impact of some lower margin lending in 2023, due primarily to delays in mortgage pricing reflecting the rate rises and higher swap costs," it said.

Meanwhile, the underlying cost to income ratio is expected to be "broadly flat" to the 2023 underlying ratio of 33%, commensurate with the NIM guidance.

Broker Shore Capital, which rates the shares at 'buy', said adjusted pre-tax profit £426m was 4% ahead of consensus and 2% ahead of its forecast, primarily due to lower-than-expected impairments.

However, net interest margin guidance is lower than it and consensus had expected, "which is likely to drive sizeable forecast downgrades".

Analyst Gary Greenwood said: "Net interest margin is about 30 basis points lower than what we have modelled in (we understand consensus is only slightly below us) and consequently the C/I ratio is higher.

"This differential is primarily due to higher funding costs. We provisionally expect this to result in adjusted profit before tax in a £450-470m range (EPS of 85-90p). This compares to our current forecasts of £560m and 107p respectively, so these are sizeable downgrades."

At 0920 GMT, the shares were down 15% at 390.04p.

Email this article to a friend

or share it with one of these popular networks:

• DIGG
• FACEBOOK
• STUMBLEUPON
• MIXX
• YAHOO BUZZ
• DELICIOUS
• REDDIT
• NEWSVINE