• Pretax profit jumps 75% as loans climb to 6.1 billion pounds
  • Net interest margin growth to slow as interest rates stay low

Aldermore Group Plc, one of a group of U.K. banks seeking to challenge the dominance of the nation’s four biggest lenders, said 2015 profit surged 75 percent as mortgages and loans to small businesses climbed. The shares rose.

Underlying pretax profit, which excludes costs tied to Aldermore’s initial public offering, jumped to 98.8 million pounds ($140 million) from 56.3 million pounds in the year-earlier period, the Reading, England-based lender said in a statement Thursday. Net loans increased 28 percent to 6.1 billion pounds led by growth in commercial and residential mortgages.

“We saw growth in almost all of our segments, which shows the diversification we have in our lending book,” Chief Executive Officer Phillip Monks said in a telephone interview. “We don’t need acquisitions to sustain our growth; it’s been 100 percent organic so far and we are very confident we can continue to drive the momentum we’ve seen at the same risk-adjusted returns.”

Aldermore joined the U.K.’s FTSE 250 stock index last year after its IPO in March. The bank is part of a cadre of fast-growing challenger banks trying to poach customers from Britain’s four biggest lenders, which control as much as 80 percent of the market, by offering faster lending decisions and more personalized customer service. 

Shares Up

The bank surged as much as 6.3 percent and traded 1.1 percent higher at 218.2 pence at 10:06 a.m. in London, giving the company a market value of about 753 million pounds.

Buying Royal Bank of Scotland Group Plc’s Williams & Glyn unit “is not on our radar,” Monks said. RBS has to sell the retail branch network by 2017 as per a European Union order. Commenting on whether Aldermore may itself be a target, Monks said “whether someone else thinks we are an attractive bank for a takeover is up to them.”

Commercial mortgages to small companies grew 50 percent to 829 million pounds, while residential mortgages rose 42 percent to 1.4 billion pounds, according to the statement. Invoice financing, the bank’s smallest business, fell 11 percent.

Loan Growth

“These are excellent results” with “net loan growth accelerating strongly,” said Ian Gordon, an analyst at Investec Plc with a buy rating on the stock. “We continue to expect Aldermore to deliver material out-performance against every other U.K. bank in our coverage.”

Aldermore was among banks hardest hit by Chancellor of the Exchequer George Osborne’s 8 percent corporate tax surcharge on bank profits introduced last year, which has reduced potential profitability, according to Chief Financial Officer James Mack.

“The Chancellor at the moment doesn’t seem minded to change his mind on taxes, which we think is disappointing and we will continue to support lobby groups to look at what we can do to effect change there,” Mack said in a telephone interview. “We now expect ROE to be in the high teens rather than around 20 percent as a consequence.”

Start Dividends?

The bank’s underlying return on equity, a measure of profitability, climbed to 19.7 percent from 13.5 percent and earnings per share rose 75 percent to 22.7 pence. The bank will discuss starting a dividend next year, Mack said.

While the net interest margin, the difference between its income from lending and its cost of funding, widened to 3.6 percent from 3.4 percent in the year-earlier period, the CEO cautioned that the persistently low Bank of England base rate will slow growth.

“Our net interest margin will reflect this environment and we expect a flattening of the net interest margin in 2016,” Monks said.

As a lender solely focused on the U.K., the direct impact on Aldermore from a potential British departure from the European Union would be muted and the bank is neutral in the “Brexit” debate, Monks said.

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