Virgin Money Holdings
How bank analysts turn a return-on-tangible-equity forecast into a price-to-book multiple via the ROTE/COE framework.
- Rating
- Price target
- 320p
- Published
- December 23, 2014
- Length
- 44 pages
- Sector
- UK challenger banks
- Market
- UK
What the analyst argued
Goldman Sachs initiated Virgin Money, a UK challenger bank built on Northern Rock's good bank, at Neutral with a 320p target. The bank held only 1.6% of UK mortgage stock but about 3% of new lending, and planned to add a GBP 3bn credit card book; a scalable, branch-light platform funded by savings deposits should produce positive cost jaws, taking ROTE from 5.7% in 2014 to 13.4% in 2016. The target came from a ROTE/COE framework equating to 1.36x 2014 tangible book, with margin compression, regulation and house prices as the main risks.
Lead analysts: Martin Leitgeb, Nick Baker, Jackie Cheung.
Inside the report
- 01Overview: An uncomplicated domestic growth story
- 02Company profile: An uncomplicated retail bank
- 03An appealing domestic growth story
- 04Cost control brings operating leverage
- 05Strong asset quality and low risk costs
- 06Adequately capitalized to fund future growth
- 07Financials: Loan growth and operating leverage key drivers
- 08Valuation: Our 12m ROTE/COE based price target implies 11% upside potential
- 09Risks include margin compression, regulation and house prices
- 10Appendix: Comparison with other challenger banks
- Price-to-book
- P/E
- Comparable companies
Includes a multi-year earnings model with the income statement, balance sheet, and cash flow forecasts the valuation is built on.
Read the report
44 pages
Tap the cover to open the PDF.Published by Goldman Sachs on December 23, 2014 and hosted here for educational use; the report and everything in it belongs to Goldman Sachs. The rating, estimates, and price target are the analysts’ view on that date, more than a decade ago, and are not a recommendation today. Copy first uploaded October 5, 2026.
More initiations
20 reports in the library- Duke EnergyGoldman SachsHow credit analysts compare holdco and opco bonds on g-spread and FFO/debt, and spot a bond-CDS basis trade.Credit initiation · January 5, 2015 · 17 pagesUtilities credit
- CGN PowerDeutsche BankHow to build a life-of-asset DCF with no terminal value for a utility, and how to argue Sell on a well-liked IPO.Initiation of coverage · January 7, 2015 · 55 pagesTarget HKD 2.90
- 3P LearningDeutsche BankHow to value a recently listed subscription software company with a DCF, then stress-test it with bull and bear scenarios.Initiation of coverage · January 14, 2015 · 44 pagesTarget AUD 2.70
- Australian Aged CareDeutsche BankHow a sector initiation models demographics and government funding before comparing three operators on the same DCF framework.Sector initiation · January 23, 2015 · 126 pagesTarget AUD 5.90 Estia, 4.50 Regis, 2.12 Japara
