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UK- based CYBG Plc (CYBG.L) is the holding company for CYB Investments Limited (CYBI) and Clydesdale Bank PLC (Clydesdale Bank). The Company owns National Australia Bank Limited’s Clydesdale and Yorkshire Bank operations (the Clydesdale Bank business). Clydesdale Bank provides banking services to UK SME’s, with products and services including mortgages, current accounts, deposits, term lending, personal loans, working capital solutions, overdrafts, credit cards and payment and transaction services. Clydesdale Bank consists of approximately 120 Clydesdale Bank-branded branches and approximately 150 Yorkshire Bank-branded branches.

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On August 1^st 2017, CYBG said trading for the 3 months to 30 June 2017 had been in line with expectations, with continued delivery against the Group’s strategic targets and objectives. CYBG confirmed a continued robust capital position, with a CET1 ratio of 12.4%, comfortably within target range (12-13%). In addition agreement had been reached to close the Group’s defined benefit pension scheme to future benefit accrual, delivering a substantial reduction in the scheme’s funding deficit. The CYBG efficiency programme also came in ahead of schedule, with underlying FY operating costs expected in below £680m, ahead of previous guidance of £690-700m. CEO David Duffy said the board remained confident that the medium term strategy outlined at the capital markets day in September 2016 “will differentiate us from our competitors and deliver our FY19 targets as we seek to build a better bank for our customers and staff and improve returns for our shareholders.”

April 2017 triggered a GRT (Earnings Growth Rate) earnings increase for CYBG across the VectorVest stock analysis and portfolio management platform. Despite the stock briefly dipping from 285p to 260p, the GRT chart has continued to build over the summer. GRT reflects a company’s one to three year forecasted earnings growth rate in percent per year, and despite trading today at 313p, CYBG still logs a GRT of 42%, which VectorVest considers to be excellent. Despite the increase since April, CYBG still trades at just 313p, leaving the stock materially undervalued against our target of 462p.

The chart of CYBG.L is shown above in my normal format. Earnings per share (EPS) is growing smoothly over the last year and that’s driving the share price higher. EPS has trebled over the last year. Technically the chart is strong with the share breaking through a 52 week high at the end of September 2017. CYBG.L is ona BUY recommendation on VectorVest.

Although many banks and financials stocks have endured a torrid time since the credit crunch, some of the smaller market constituents offer greater flexibility and significant upside potential. Having triggered a substantial earnings upgrade metric on the VectorVest platform, CYBG is firmly in this category, particularly on account of operating cost reductions and reduced pension liabilities. Shares have already delivered substantial growth since the April flag, but in the view of VectorVest remain materially undervalued against our 462p valuation.

Dr David Paul

November 1 2017

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