Mortgage bank Northern Rock is on track to meet analyst profit expectations for 2006 after net lending in the first quarter rose 26% from a year earlier, it said on Monday.
Britain’s eighth biggest listed bank said it was comfortable that its 2006 post-tax attributable profit will reach GBP 352 million, which it said was the consensus forecast from 19 analysts, up 14 % from last year.
The bank said its total lending pipeline stood at GBP 5.7 billion, up 15% from a year ago and 8% higher than at the start of this year. The shares have leapt 49% in the past year as the bank has won business from rivals and been helped by vague takeover speculations.
“Volume growth remains robust, it all reads fine and it’s typical Northern Rock,” said James Hamilton, analyst at WestLB Panmure, adding that his main concern was the lofty valuation of the shares.
Northern Rock said it expected to improve its ratio of costs to income in 2006. Its cost: income ratio was 29.8% in 2005, already the best for a UK bank.
It’s the most efficient retail banking business in Europe and in the mortgage market that’s very important,” Hamilton said.
The mortgage specialist said earnings per share and dividend growth would be consistent with its underlying profit growth. It said asset growth would slow to near the middle of its targeted 15-25% range in the next 2-3 years and underlying earnings would move towards the mid-point and then above its targeted 10-20% growth range, repeating forecasts made in January.
Northern Rock’s profits jumped 14% last year as strong demand for low-risk residential mortgages helped it to record earnings for the 22nd straight year.
The bank, based in Newcastle, has withstood a tough housing market by keeping costs down and taking remortgage business from its rivals.
Since listing in 1997 it has focused on low-risk, low-cost mortgages and a simple model, helping its share of the UK mortgage market rise to 8.1 percent last year from 6.8 percent in 2004.