Jefferies raises Paragon price target

1st Jul 2015 13:19

Jefferies raised its price target on Paragon Group of Companies to 540p from 440p and kept its rating at 'buy'."Our basic thesis is that Paragon is returning to a more normal level of buy-to-let (BTL) mortgage market share, having been constrained by lending capacity," said Jefferies.It said the group has developed a number of levers of growth and funding diversity, which can help to offset concerns about the visibility of loan purchases.It also noted that Paragon is under-levered in relation to its buy-to-let peer group and would benefit from increasing leverage so long as it avoids funding working capital requirements from short-term bank credit facilities.Downside risks to the stock include an unexpected and significant rise in interest rates that would put a strain on landlords and could increase loss provisions sharply, and a big fall in house prices that would impact confidence in the sector and new business volumes.At 1335 BST, Paragon shares were up 2.1% at 423p.