LONDON - Virgin Money (LON:VM) has announced a comprehensive strategic plan to invest £130 million over the next three years to bolster its artificial intelligence capabilities and enhance cybersecurity defenses. This initiative comes as a response to the growing threat of financial crimes, which have been intensified by the increased online activity and the influence of social media.
The bank's decision to ramp up investment in technology is part of a broader effort to protect customers and ensure the company's resilience against evolving cyber threats. To support this tech-focused strategy, Virgin Money will implement cost-saving measures aimed at saving £200 million annually. These savings will be achieved through strategic real estate optimization, expanded outsourcing, and improvements in system efficiency.
The urgency for this investment has been highlighted by a notable drop in profits, which have declined to £345 million. This decrease is partly attributed to a rise in loan default provisions that have reached £309 million (GBP1 = USD1.2550). Despite these challenges, CEO Duffy has expressed a strong commitment to safeguarding the interests of both customers and shareholders. However, he also acknowledged that there might be a delay in achieving the targeted double-digit statutory returns due to these recent strategic investments and market conditions.
InvestingPro Insights
As Virgin Money UK PLC (VMUK) embarks on a significant investment in technology and cybersecurity, it's important to consider the company's financial health and market performance. According to InvestingPro data, VMUK boasts a market capitalization of $2.55 billion and trades at an attractive price-to-earnings (P/E) ratio of 3.66 based on the last twelve months as of Q2 2023. This low earnings multiple, alongside a price/book ratio of 0.38, suggests that the stock may be undervalued relative to its assets and earnings potential.
InvestingPro Tips highlight that management's aggressive share buybacks and the ability to maintain dividend payments, thanks to strong earnings, are positive signs for investors. The company's significant dividend yield of 6.88% as of the most recent data point is particularly compelling for income-focused shareholders. Furthermore, analysts predict profitability for the current year, and the company has been profitable over the last twelve months.
While revenue has shown a decline at an accelerating rate, the strategic investments in AI and cybersecurity could position Virgin Money for a more secure and efficient operational future, potentially reversing this trend. With the InvestingPro subscription now on a special Black Friday sale with discounts of up to 55%, subscribers can access additional insights, including the 9 listed InvestingPro Tips and more, to make informed investment decisions.
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