Berenberg slashes target price on Vanquis after macro hit forces sharp cuts to forecasts

(Sharecast News) - Analysts at Berenberg cut their price target on Vanquis on Thursday, lowering it from 145p to 80p after a material downgrade to earnings and returns prompted by worsening macro conditions and rising customer insolvencies.

Berenberg kept its 'buy' rating but said delivery of the group's midtohighteens return on tangible equity ambition was now likely to take longer than previously expected.

Vanquis's thirdquarter update highlighted a tougher backdrop, with higher individual voluntary arrangements driving up impairments in credit cards and pushing yeartodate riskadjusted marginz down to 8.5% from 9.3% at the end of H1.

Although gross interestearning balances rose 5% to £3.2bn and net interest margins held broadly steady at 14.8%, the increased cost of risk forced a stepup in IFRS 9 provisioning and contributed to a small quarterly loss. Berenberg said management had already begun moderating loanbook growth and accelerating cost savings, but the macro hit outweighed the benefit of these actions.

The German bank expects challenging conditions to persist into FY27, with costofliving pressures continuing to weigh on household finances. Loanbook guidance for FY27 has been trimmed to £3.4bn from £3.7bn, while additional cost reductions were now assumed through FY28.

As a result, Berenberg has shifted its forecasts "one year to the right", cutting FY26 earnings per share from 3.1p to a 2.9p loss, and slashing FY27 EPS by 79% to 2.9p. ROTE expectations have also been reduced to 2.2% for FY26 and 2.2% for FY27, though the common equity tier one ratio was still seen at around 12% across the forecast horizon.

Reporting by Iain Gilbert at Sharecast.com