Virgin Money’s IPO could position the company as a solid U.K. banking contender
Institutional Investor
November 7, 2014
By Robert Stowe England
Try brainstorming word associations with the color red, and “cool” is not likely to come up. And for a bank, being in the red is decidedly uncool. Yet when it comes to Virgin Money Personal Financial Service, the company founded by perennial entrepreneur Sir Richard Branson, the signature scarlet hue of parent Virgin Group aims to connote both hipness and financial stability.
In a week or so, the upstart financial institution is going to take its next step to make inroads into the U.K.’s firmly entrenched inner circle of banking. According to an unnamed source close to the deal, Virgin Money is holding a £150 million ($238 million) initial public offering toward ”the back end of next week.”
Analysts have estimated that Virgin Money could be valued at between £1.5 billion and £2 billion at the time of the listing. The company has said that it expects to become eligible for inclusion in the FTSE U.K. indexes and that it plans to pay out a dividend target of 10 to 20 percent of statutory profit after taxes. “If their price is in the expected range, they’re going to be priced a little more expensively than some of the incumbent banks,” says Jared Woodard, equity derivatives strategist at BGC Partners in New York. “The expectation is that Virgin Money is going to be faster growing and be exposed to [attractive] retail banking margins.”
From an image standpoint, Virgin Money’s share issue looks likely to boost its ongoing efforts to scale up its strategy of targeting younger people to grab market share from the U.K.’s major banks. Virgin Money has made its way onto the roster of CoolBrands, a ranking of companies selected by members of the U.K. public and the Expert Council, a panel of 37 British scenesters. A Virgin Money branch, complete with easy chairs, free Wi-Fi and complimentary beverages, feels more like a boutique hotel lounge in London’s trendy Shoreditch neighborhood than a traditional bank outlet. But it will take more than a cool brand for the challenger bank to make significant inroads against the U.K.’s entrenched financial institutions. The company will have to continue its lean operations and tight focus on targeting young people to switch their accounts and business to Virgin Money.
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