FTSE 250 movers: Virgin on the money; Tyman slips on outlook

(Sharecast News) - FTSE 250 (MCX) 19,654.33 0.93% Virgin Money said on Thursday that it has agreed to be taken over by Nationwide Building Society in a £2.9bn deal.

Virgin shareholders will receive 220p per share, which is a 38% premium to the closing share price on Wednesday.

The price comprises 218p per share in cash and a 2p dividend to be paid in FY24.

The companies said the deal would create a combined group with total assets of around £366.3bn and total lending and advances of approximately £283.5bn, representing the second largest provider of mortgages and savings in the UK.

Virgin Money chief executive David Duffy said: "This potential transaction with Nationwide represents an exciting opportunity to build on the significant progress we have made in becoming the only new Tier 1 bank in recent history. The combined scale and strength would expand our customer offering and complete our journey in the banking sector as a national competitor."

Nationwide CEO Debbie Crosbie said: "Importantly, Nationwide will remain a building society, and a combined group would bring the benefits of fairer banking and mutual ownership to more people in the UK, including our continuing commitment to retain existing branches, as part of our 'Branch Promise' and leading levels of customer service.

"We believe the combination would create a stronger and more diverse business that will be better placed to deliver value to our members and customers, both now and in the future."

At 0945 GMT, the shares were up 37% at 217.50p.

Shore Capital analyst Gary Greenwood said: "We had speculated for a while that VMUK was a potential bid target given its persistently low valuation, but wondered whether a trade purchase would be difficult given potential fair value adjustments and the poison pill associated with the Virgin brand agreement. In addition, there is significant integration risk for a trade buyer such as Nationwide.

"In our opinion, long suffering shareholders are likely to welcome this offer, especially given its cash nature, but we feel it undervalues the group and that management could have perhaps driven a harder bargain.

"What it does imply to us, is that management had little faith around successful execution of an organic strategy, which could have potentially yielded a much higher valuation if targets were met.

"We see little read across to the larger mainstream banks, for which takeover potential would be unrealistic, but this does underscore that there is value in the sector and that smaller banks on low valuation multiples are vulnerable to such approaches. Furthermore, we see the likelihood of a counter offer as being very low."

ShoreCap has a 'buy' recommendation on the stock.

Russ Mould, investment director at AJ Bell, said: "The mortgage industry has changed colour more times than a chameleon and Virgin Money has been one the key names involved in the consolidation process. Having acquired Northern Rock at the start of 2012, Virgin Money was then gobbled up by CYBG in 2018 and merged into Clydesdale Bank in 2019. It's now set to become part of Nationwide.

"It's an interesting time for big deals in the mortgage sector. We've seen tentative signs that the property market is regaining strength after a difficult few years hampered by a high interest rate environment which made mortgages less affordable. While mortgage rates have crept back up in recent weeks, the general consensus is that the Bank of England will start cutting base rates later this year and that should hopefully benefit those looking to move home or get on the housing ladder.

"Nationwide is effectively pouncing on Virgin Money at a time when prospects are improving for its industry, albeit we're still in a volatile period until the base rate starts to come down. This is slightly unusual as companies often buy rivals at precisely the wrong time - namely acquiring at the top of the market when everything looks good and then overpaying for deals, rather than taking bold steps and acquiring when everything looks bad and valuations are weak.

"Buying Virgin Money is not just about mortgages - the company will also boost Nationwide's position in the deposit, credit card and business banking sectors. The brand will still be used for six years and we're unlikely to see big branch closures for a few years. This all depends on Nationwide being able to get the deal over the line. It's slightly out of kilter with its traditional roots but would not change its status as a building society.

"A 38% bid premium is not overly generous and sits well below the 51% average seen last year with UK-listed takeovers. We might get interest from other parties now that Nationwide has thrown its hat into the ring or shareholders might push for a better price."

Door and window parts maker Tyman said it expected a "challenging" market outlook this year as the building sector continued to struggle amid high interest rates and inflation, reflected in a 19% fall in 2023 profits.

Revenues fell 8% to £657.6m after a "significant" reduction in volumes partially offset by the carryover benefit of pricing actions and share gains, Tyman said on Thursday. Pre-tax profit for the full-year came in at £75m.

"The structural growth drivers for the group remain attractive, although leading indicators for our major markets are currently signalling a challenging market outlook for 2024," said chief executive Jason Ashton.

UK broadcaster ITV reported a 41% fall in annual profits as weak ad revenues offset a record performance from its studios unit.

Pre-tax profit for the year to December 31 came in at £396m from £672m a year earlier.

Group revenues fell by 2% to £4.3bn, with TV advertising decreasing by15%. However, there was a brighter picture at digital, where sales rose 19% and the studios arm reported a 4% increase, to £2.2bn.

The commercial broadcaster has set its sights on making more from its studios business, with the recent 'Mr Bates' drama about the scandalous treatment of post office operators, viewed by 4 million people when televised in January, and 10 million more via the channel's on-demand service, ITVX and its ITVX streaming business.

ITV last week sold its 50% share of the UK streaming service BritBox International to its joint venture partner BBC Studios for a net £235m in cash which it plans to return to shareholders.

Cost cuts of £50m, on top of an existing targets to save £150m between 2019 and 2026 were also unveiled and will come from technology and operational efficiencies.

"ITV claims it's seen the peak in investment in Streaming, leaving it well-placed to grow profits from here. But given the intense competition in the space, that remains to be seen," said Derren Nathan, head of equity research at Hargreaves Lansdown.

"The expectation that total advertising revenue will rebound 3% in the first quarter of 2024 suggests things are going in the right direction but there's still material execution risk here. That's somewhat reflected in the valuation, with the shares being pummelled to the tune of around 30% over the last 12 months."

"The high single-digit dividend yield shouldn't be overlooked. And the recent sale of the 50% stake in Britbox International enables greater focus on the core business and paves the way for a £235m buyback that begins today."

Market Movers

FTSE 250 - Risers

Virgin Money UK (VMUK) 215.20p 35.30% Darktrace (DARK) 398.60p 13.24% ITV (ITV) 67.56p 10.83% Coats Group (COA) 73.90p 7.73% Domino's Pizza Group (DOM) 371.80p 6.29% North Atlantic Smaller Companies Inv Trust (NAS) 3,800.00p 3.83% W.A.G Payment Solutions (WPS) 78.00p 3.45% Oxford Instruments (OXIG) 2,205.00p 3.28% Pennon Group (PNN) 704.50p 3.22% OSB Group (OSB) 472.80p 3.05%

FTSE 250 - Fallers

Quilter (QLT) 98.20p -5.03% Tyman (TYMN) 281.00p -4.75% Bank of Georgia Group (BGEO) 5,000.00p -2.91% Plus500 Ltd (DI) (PLUS) 1,755.00p -2.66% PZ Cussons (PZC) 94.90p -2.37% Safestore Holdings (SAFE) 761.00p -2.25% Assura (AGR) 42.14p -1.73% Genuit Group (GEN) 405.00p -1.58% Chemring Group (CHG) 354.00p -1.39% SDCL Energy Efficiency Income Trust (SEIT) 65.30p -1.21%