Virgin UK (VUK) +14.63%: Rallied strongly today following a 1Q trading update in the UK overnight which was broadly in line with market expectations except for a few variables that could / should drive earnings upgrades. Firstly, the UK is obviously doing it tough however the vaccination program is being aggressively rolled out and markets price 6 months ahead, not 6 months behind. They are losing market share in the UK which was a negative, however margin guidance was decent, and impairments were a lot lower than feared, which is the reason why upgrades are likely. Capital was also good.
In terms of value, VUK trades on 0.5x book value, i,e, a 50% discount to its assets. That happens when assets held are likely to lose money which we think is an overly bearish assumption. As a comparison, CBA trades on 2x book. Ultimately, this is a cheap play on UK banking / improvement with upside from an earnings recovery PLUS a multiple expansion.
MM are bullish VUK having added it to the growth portfolio today
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