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The FTSE 250 hits record highs! Here’s why this UK share is soaring

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Tuesday has proved to be a landmark day in the life of the FTSE 250. Investor demand for market shares has picked up thanks in part to forecast-beating economic data from Japan and the eurozone this morning. As a consequence, Britain’s second-tier index struck fresh record peaks a shade below 23,000 points in morning trading.

The FTSE 250 has since settled lower and was last only fractionally higher on the day (around 22,920 points). But the Paragon Banking Group (LSE: PAG) share price is having no such problems holding onto meaty gains.

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A bubbly trading statement helped Paragon’s share price also strike new highs of 575p per share in afternoon trade. It has retraced a bit, but at 567p per share the bank remains 11% higher than at Monday’s close. The buy-to-let lender has now risen 54% in value over the past year.

FTSE 250 firm enjoys record half-year profits

Paragon Banking Group announced that underlying profit came in at £82.9m during the six months to March. This represented a half-year record and was up 44.9% year-on-year. Net interest margins — the difference between what banks offer to borrowers and savers — rose to 2.32% from 2.29% a year earlier.

A sharp fall in bad loans from the same period a year earlier also helped the bottom line beat forecasts. Impairments clocked in at £6m during the first half versus £30m in the same period in financial 2020.

New lending at the FTSE 250 firm was up 45.1% in the first half versus the previous six months. Paragon Bank said that new loans were also just below pre-coronavirus levels in the latest half-year period. Buy-to-let advances were down 5% from a year earlier, though these were up 58% from the previous six months.

“The strong performance in the first half of the year reflects the resilience of the business model both financially and operationally as the economy recovers from the Covid pandemic”, Paragon said. It added that its markets “have seen healthy quarter-on-quarter improvements in activity [and that its business] has been building momentum”.

A mixed outlook?

So what do brokers think UK share pickers should expect in the coming months? Commenting on today’s results, managing director Rob Murphy of Edison Group says, “Investors will be pleased to see the beginnings of recovery in the group’s key buy-to-let mortgage business”. He notes that “performance strengthened” at Paragon Banking Group in the first half and that total loans rose 4.7% from a year earlier to £10.9bn. This reflected “a more positive outlook for the wider property market”, he says.

However, Murphy has sounded a note of caution concerning the firm’s commercial lending division. He says that “Similar levels of recovery are yet to be seen” here and that Paragon saw lending fall in the motor, SME, and structured lending sectors on a year-on-year basis. He adds that “The looming prospect of the closure of government support schemes means that many uncertainties remain”.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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