Why this ASX bank stock is set to surge this morning

The big rally in the share prices of our largest banks following the release of the final report from the Banking Royal Commission has taken the spotlight but there's another bank that's likely to come into frame this morning.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The big rally in the share prices of our largest banks following the release of the final report from the Banking Royal Commission has taken the spotlight but there's another bank that's likely to come into frame this morning.

The ASX-listed UK bank CYBG PLC/IDR UNRESTR (ASX: CYB) share price is poised to shoot higher after it released its latest quarterly update at the close of market yesterday.

The results sent its London-listed shares rocketing 14% higher last night and we can expect a big open for the ASX stock, which had suffered a big sell-off late last year on a profit downgrade.

Bouncing back

But sentiment is about to turn. CYBG, or better known as Clydesdale & Yorkshire Bank, said it expects to reap bigger than expected synergies from its merger with Virgin Money last October when it released its December quarter trading update.

CYBG now expects to reap at least £150 million ($273 million) in savings before the end of FY21, which is a whopping 25% increase from its earlier estimates.

This point is made more significant by the fact that many die-hard believers (including myself) have hung on to the stock due to the expected upside from the Virgin Money merger.

The stock had halved in value since hitting a peak of $6.33 in August last year and worries about the impact of Brexit has driven most of the losses.

But the uncertainty created by Brexit hasn't gone away with the British government still struggling to reach an agreement with the European Union before the UK's planned exit from the union in seven weeks.

Growth levers

Despite the turmoil, CYBG has still managed to grow its mortgage business by 1.5% to £60 billion and it credits its "strong pipeline" of customers and "good customer retention" for the growth, although management isn't expecting this to persist given strong competition.

Bottom-line growth will need to come from the Virgin Money merger, cost cutting and small to medium enterprise (SEM) lending.

Its SME loan book posted growth of 1.2% to £7.6 billion and management believes growth will be "robust" thanks to the UK government's program to get smaller lenders to take over SME loans from bailed-out bank RBS.

Unless Brexit turns out to be much worse than anticipated, the CYBG share price has probably seen a bottom.

The turnaround in sentiment towards the UK bank comes at a time when investors are feeling a little more confident about the Commonwealth Bank of Australia (ASX: CBA) share price, Westpac Banking Corp (ASX: WBC) share price, Australia and New Zealand Banking Group (ASX: ANZ) share price and National Australia Bank Ltd. (ASX: NAB) share price.

The banks aren't out of the woods yet though and those looking for blue-chip buying opportunities outside of the sector will want to read this free report from the experts at the Motley Fool.

Follow the free link below to find out more.

Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia, CYBG Plc and Westpac Banking. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Gainers

Man with rocket wings which have flames coming out of them.
Share Gainers

Guess which ASX All Ords stock just rocketed 34% on strong earnings growth

Investors just sent this ASX All Ords stock surging 34%. Here’s what’s happening.

Read more »

A businessman looking at his digital tablet or strategy planning in hotel conference lobby. He is happy at achieving financial goals.
Share Gainers

Why Dimerix, Newmont, Regal Partners, and Titomic shares are storming higher

These shares are having a good finish to the week. Let's see why.

Read more »

Two happy excited friends in euphoria mood after winning in a bet with a smartphone in hand.
Share Gainers

Why Fortescue, Lynas, PEXA, and Regis Healthcare shares are charging higher

These shares are having a strong session on Thursday. But why?

Read more »

A young man talks tech on his phone while looking at a laptop. A financial graph is superimposed across the image.
Share Gainers

Why Capricorn Metals, Insignia, Perseus Mining, and Qoria shares are storming higher

These shares are having a strong session on Tuesday. But why?

Read more »

A man clenches his fists in excitement as gold coins fall from the sky.
Share Gainers

Why Amaero, AMP, Block, and South32 shares are racing higher today

These shares are starting the week on a positive note. But why?

Read more »

Ten happy friends leaping in the air outdoors.
Share Gainers

Here are the top 10 ASX 200 shares today

It was another momentous session for ASX shares this Friday.

Read more »

Overjoyed man celebrating success with yes gesture after getting some good news on mobile.
Share Gainers

Why BHP, Catalyst Metals, Mesoblast, and Pilbara Minerals shares are shooting higher

These shares are ending the week with a bang. But why?

Read more »

Doctor doing a telemedicine using laptop at a medical clinic
Healthcare Shares

The Mesoblast share price just rocketed 38%! Here's why

ASX investors just sent the Mesoblast share price up 38%. But why?

Read more »