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Morningstar | CYBG’s 1Q19 Update Impresses, but Brexit Uncertainties Persist

The merger with Virgin Money provides good earnings upside with the combined entity well positioned to benefit from attractive growth, but we are concerned by risks around merger integration, potentially overpaying and rebranding of the iconic establishment Clydesdale and Yorkshire brands to the more edgy Virgin Money brand. Legacy customer conduct issues continue to disappoint, and uncertainty remains. The focus on product innovation, process simplification, cost reduction, and capital optimisation has established a solid platform for growth. The political and economic outlook in the U.K. is uncertain, but the group is heavily focused on the Virgin Money integration and delivering on financial targets. In addition to forecast merger synergies, there is further upside from potential revenue and funding initiatives. A strong capital position, a diversified funding base, and a high-quality loan book impress.