Breakeven Is Near for Virgin Money UK PLC (LON:VMUK)

With the business potentially at an important milestone, we thought we'd take a closer look at Virgin Money UK PLC's (LON:VMUK) future prospects. Virgin Money UK PLC provides banking products and services for consumers, and small and medium sized businesses under the Clydesdale Bank, Yorkshire Bank, and B and Virgin Money brands in the United Kingdom. With the latest financial year loss of UK£220m and a trailing-twelve-month loss of UK£162m, the UK£2.8b market-cap company alleviated its loss by moving closer towards its target of breakeven. Many investors are wondering about the rate at which Virgin Money UK will turn a profit, with the big question being “when will the company breakeven?” Below we will provide a high-level summary of the industry analysts’ expectations for the company.

View our latest analysis for Virgin Money UK

Consensus from 20 of the British Banks analysts is that Virgin Money UK is on the verge of breakeven. They expect the company to post a final loss in 2020, before turning a profit of UK£178m in 2021. So, the company is predicted to breakeven approximately a year from now or less! At what rate will the company have to grow in order to realise the consensus estimates forecasting breakeven in under 12 months? Using a line of best fit, we calculated an average annual growth rate of 37%, which signals high confidence from analysts. If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.

We're not going to go through company-specific developments for Virgin Money UK given that this is a high-level summary, though, take into account that by and large a high forecast growth rate is not unusual for a company that is currently undergoing an investment period.

One thing we would like to bring into light with Virgin Money UK is its debt-to-equity ratio of over 2x. Generally, the rule of thumb is debt shouldn’t exceed 40% of your equity, and the company has considerably exceeded this. A higher level of debt requires more stringent capital management which increases the risk around investing in the loss-making company.

Next Steps:

There are key fundamentals of Virgin Money UK which are not covered in this article, but we must stress again that this is merely a basic overview. For a more comprehensive look at Virgin Money UK, take a look at Virgin Money UK's company page on Simply Wall St. We've also put together a list of important factors you should further research:

1. Valuation: What is Virgin Money UK worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether Virgin Money UK is currently mispriced by the market.
2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Virgin Money UK’s board and the CEO’s background.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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