On Friday, Jefferies, a global financial services company, adjusted its stock price target for OneSavings Bank PLC (LSE:OSB) (OTC: OSVBF), reducing it to £6.00 from the previous £7.80. The firm has, however, chosen to maintain its Buy rating on the stock.
The revision comes in the wake of OneSavings Bank's performance last year, which did not meet expectations, causing it to fall behind its closest competitor, Paragon Banking Group PLC, in terms of the price-to-book (P/B) ratio. OneSavings Bank's P/B ratio stands at 0.8x, while Paragon's is at 1.1x.
OneSavings Bank is also facing an uptick in its expected cost/income ratio, which is now anticipated to be around 33% in the future, up from approximately 27% in the past. Moreover, the bank's net interest margin (NIM) is forecasted to decrease to 2.5% from the previous estimate of around 3%. Consequently, this is expected to lead to a lower return on equity (ROE), though the estimated ROE is still projected to be around 18% over the next two years.
Despite these challenges, Jefferies believes that OneSavings Bank's potential returns remain more favorable than most other banks. The firm's analyst highlighted that the expected higher return justifies a price target that is at least equal to the bank's tangible net asset value (TNAV), resulting in the new £6.00 price target.
Jefferies' stance on OneSavings Bank reflects a vote of confidence in the bank's ability to outperform despite the recent adjustments to financial metrics. The bank's shares are still considered a good investment at the revised price target, according to the firm's analysis.
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