Proactive Investors - Virgin Money UK PLC (LON:VMUK) final results could be a bit of a mixed bag when reported on Thursday 23 November.
In a note to clients almost a week in advance, analysts at Barclays (LON:BARC) trimmed their earnings forecasts and their share price target for the challenger bank.
The price target was cut to 195p from 210p as the analysts reduced their forecasts for net interest income (NII) to 1% for this year, 3% for 2024 and 2% for 2025.
"There is likely to be meaningful term deposit spread compression as a high yielding backbook of term deposits matures onto low spreads," they said,
Spread compression refers to a narrowing of the difference between the interest rate banks charge for loans and the interest rate they pay for deposits or borrowing.
"Given a heavy reliance on fixed term deposits (c30% of total), predominantly maturing over the coming 12 months, we think this is a headwind not fully factored into consensus."
While viewing UK bank shares as "probably the best hedge in the world" as they are best placed globally to overcome term-funding risks, the banking equity research team at Barclays added that they see the challenger banks as "most exposed" to Term Funding Scheme Small and Medium-sized Enterprises (TFSME) refinancing, "both given the reliance on the funding and the potentially higher cost to refinance than the large cap banks".
For VMUK, the focus at results is expected to be on the trajectory for NII into 2024 and beyond, as well as potential share buybacks.