The mortgage industry has been living under the cloud of the financial crisis since 2008, but one company that seems to be breaking out is Paragon Group of Companies (PARA.L), which trades on the London Stock Exchange. We add up the figures to see if opportunities are lurking behind the balance sheet.
Paragon is in mortgage lending and consumer finance, which were hardest hit by the financial crisis. It has managed to turn around with improved capital ratios and in February of this year opened a retail bank with the hope of entering the lucrative car financing market. That kind of expansion speaks to the confidence management has in its current operations. The company has a positive StarMine Predicted Surprise of 3%, which indicates that it is likely to beat analyst estimates when it reports full year results on Nov. 25.
Source: Eikon
Adding up major metrics
The table above shows that on every measure, Paragon has improved its performance over the last year on most major metrics. Operating margins have been steadily improving over the last five years, doubling to 38% from 19%. Net margin has also doubled over the same period to 30%. Analysts point to improvement in return on assets as another strong sign. Yet another positive sign — debt to equity has fallen, which means the company is less leveraged.
Source: Eikon/StarMine
Thumbs up
Analysts are taking note. Over the past 90 days, the I/B/E/S consensus estimate for full year earnings has increased to 30.6 pence per share. The StarMine SmartEstimate is at 31.5p.
Since the beginning of May, six analysts have raised their estimates for Paragon and only one has lowered it. There is even a Bold Estimate of 32.29p, an estimate by an analyst with a strong track history that is far above the consensus. When a 5-star-rated analyst post sa significantly different estimate, it’s worth a second look. While analysts were already bullish on Paragon 90 days ago, they seem even more optimistic now. Current median price target for Paragon is 421p, higher than the 390p level it was at before.
Source: Eikon/StarMine
Optimistic outlook
Perhaps management optimism has something to do with the positive sentiment around Paragon. In its 2014 half-year presentation on May 20, the company highlighted three points: 1) improved profits, EPS and an increase in interim dividends; 2) growth across all businesses; 3) funding diversified, expanded on improved terms. Those kinds of positive statements in an environment when most companies are blaming economies and fragile customers are a breath of fresh air.
Institutional investors may be interested in Paragon, too. Based on the strong StarMine Smart Holdings score of 92, it looks like the company’s financial characteristics may be aligned with those institutional investors are seeking. A healthy earnings beat could bring this stock to the forefront.
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