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Shore Capital downgrades Paragon Banking, says shares up with events
(Sharecast News) - Shore Capital downgraded Paragon Banking on Tuesday to 'hold' from 'buy' despite what it called a "robust" third-quarter trading update, as it argued the shares are up with events. The broker said Q3 deposit growth was better than expected on a strong launch from Spring - the new savings product - but mortgage volumes were a little softer than management expected in the period post the April stamp duty change. This resulted in a slight lowering of full-year volume guidance to the bottom end of the prior £1.6-1.8bn range.
"That said, mortgage lending volumes picked up towards the end of the quarter and the pipeline was also up strongly versus the position at the end of March, so this doesn't seem to be an ongoing issue," Shore said.
"Furthermore, we had already signalled in our post H1 update note that we expected full year volumes towards the bottom of the range. Consequently. with all other financial guidance unchanged, we are not changing our forecasts."
However, Shore said that as Paragon's shares have continued to perform well since the half-year results and are now closing in on its 975p fair value, it has decided to downgrade the rating.
Shore continues to recommend OSB Group as a more attractively valued alternative investment in the specialist mortgage lending space.
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