Broker snap: Bright future for Paragon

24th Nov 2010 11:09

With funding sources now available again for Paragon, KBC Peel Hunt sees a bright future for the buy-to-let mortgage lender.Final results came in marginally ahead of September guidance while the net asset value (NAV) per share at the end of September, at 234p, was slightly ahead of the 229p the broker had forecast. With the share price trading at around 160p, the stock trades at a significant discount to NAV.Paragon's pre-tax profit for the year was £66.1m, ahead of the £64.6m guidance given by the group in September. In line with broker expectations, unadjusted earnings per share was 17.8p and the dividend increased by 9% to 3.6p.Since obtaining a new a £200m senior secured loan facility at the end of September the group has said the flow of mortgage applications has been encouraging. Additionally, discussions with potential sources of additional warehouse loan capacity are ongoing.The broker forecasts a 2011 fiscal year net asset value of 240p leaving the stock at a projected 34% discount to NAV. In addition the stock has a current yield of 2.4%."We continue to believe this is unjustified - the business is cash-generative ... and the return to new lending indicates the business is moving forward again in what we expect to prove to be attractive market conditions", says analyst Stuart Duncan.The broker retains a 'buy' and has upped the target price from 227p to 247p.