Metro Bank plc (lon:mtro)
Metro Bank – Now Lower Than Their Worse COVID Dip


ItemCurrent PeriodPrevious Period
Period6 Months6 Months
Adjusted Earnings
Adjusted EBITDA
Statutory Profit(£241m)£3m
Adjusted Profit(£183m)£14m
Total Debt
Net Debt
Title: Metro Bank – Now Lower Than Their Worse COVID Dip
Company: MTRO - Metro Bank plc
Share Price Then: 61p
Author: Ian Smith
Date: Thu 01 Oct 2020
Comments: Metro Bank along with Lloyds are now at or slightly below the lowest value they hit when many shares were tumbling at the start of the year because of COVID.

Barclays is doing better up almost 30% on their lowest value but still 30% down on the peak of their recovery in June.

HSBC seems to have fallen slower than others but they are now down by the same percentage.

Anecdotally I keep meeting small businesses that are still being heavily hit by COVID restrictions, Pubs, Event participants (hire out the disco equipment or provide the bouncy castle or the food) and MPs realising that "this" can't go on much longer.

There doesn’t seem to a reason specific to Metro for the recent decline but it does seem to follow the declines in the sector but not recover as much as others.

Metro have bought RateSetter a P2P lender but said in future they would be the sole source of funds. It seems to me that this acquisition allows lending to customers who do not fit the Metro Bank profile because of location or income. With to cost being between £2.5m to £12m depending upon performance it is hardly a large expenditure.

In its financial year ending 31 March 2019, the company reported revenue of £33 million, a pre-tax loss of £8 million

So the question is has Metro bought a loss making business or one whose costs can be brought under control, Retail Money Market Ltd the owner is a private company so information on the business is limited?
As the Metro and Ratesetter brands are going to be operated separately it is hard to see where saving will come from apart from not having to pay part of interest out to the individual lenders.

Either way it doesn’t seem to be worth the effort when you consider that it represent a growth in revenue of around 10%. Why not start up Metro’s own brand with their own people and no legacy issues?

The statutory loss was a staggering £240m, which does include £100m allowance for COVID related bad debt, and close on another £100m of other one off costs, we are still left with revenue of £153m (down from £183) and “Run the Bank” costs of £184m (up from £180m).

So even ignoring the real, and possibly real one offs the bank still lost money, taking COVID into account it is easy to argue that the underlying performance was roughly break even. Which is still not great considering the share issues and the collapse from 2,000p-4,000p share price peaks.

I am convinced that the UK government doesn’t have a COVID plan, the positive of this is that one day soon they may announce all is well and all businesses can go back to normal. With personal savings growing over the last 6 months I suspect that a big splurge in retail and hospitality is just awaiting official sanction.

Although a lot of the loss don't reflect cash actually lost the foundations don't look that strong to me without another share issue.
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Share Commentaries, their purpose.

Previous Commentaries On Metro Bank plc
Date Share Price Author Commentary
Wed 06 May 202082pIan Smith

Metro Bank – 2020 Q1 Trading Update

I have followed Metro Bank’s decline with interest but I am now beginning to think that the share price is interesting especially as Vernon Hill has now departed possibly allowing for a board that is very focused on the banking part of the bank.

The trading update said that assets, loans and deposits are all down 4% from Q4 2019 but pretty much unchanged from Q1 2019. Although this means that there was no growth this is to be expected as the new branch opening program is on hold and there has been some more careful management of the loan book.

With 2m customers according to the last annual report and no indication of an exodus beyond any that happened in early 2019 when there was a lot of negative publicity as an outsider we are left with trust us it will be profitable.

When the statutory loss was £130.8m but an underlying loss of £11.7m was also reported there is almost £120m of losses which we are told don’t worry about these as they are one offs. These losses includes Impairment and write-off of PPE and intangible assets £77.7m and Remediation costs £26.8.

These are huge sums of money and if you accept that they are part of the past and a new culture means that they won’t happen again then you can just reluctantly accept them. But are they part of the past or will different impairments appear this year and more different ones next year?

That seems to be the big risk if Metro are to remain as an independent bank, but with a share price of around 80p the market cap is around £140m or £70 per customer, or triple it to 240p/£210 per customer and does this make it an attractive take over target, surely it does?

With a share issue in May 2019 at 500p per share for a company that floated at 2,200p and peaked a around 4,000p it is easy to believe that many share holders would just want out.

Clearly it is hard to be sure on this but it seems that the annual report issued on the 20th April had relatively little effect as COVID-19 is causing peaks and troughs so excluding COVID effect the price may be closer to 200p.

So it does look like a safe-ish hold and wait for a recovery share but there are a lot of shares out there that have halved because of COVID even where the virus isn’t that relevant to their business.
Thu 24 Oct 2019193pIan Smith

Metro Bank – Progress Or Not?

I tried something new on Wednesday, buying Metro Bank shares ahead of the latest trading update on the basis that the share price was getting close to reasonable with the protection of a 10% stop loss.

The effective departure of Vernon Hill, the fundraising in May and the loan risk evaluation have taken the gloss of the bank. But as a customer of a bank that has closed it local branch I believe that the branch is still a valuable tool for retaining customers and attracting new ones

With 109k new customers in Q3 it appears that many people seem to agree, however since last year deposits are down from £14.8bn to £14.2bn. With £14.9bn of loans this is a loan/ deposit ratio of 105%.

So why the big swing from a £34m profit (9 months 2018) to a small loss of £2.2m (9 months 2019), especially as Q2 2019 reported a £6.7m profit?

The answer seems to be prudent balance sheet actions which means nothing to me, is the bank now unprofitable or is this a short term blip as the impact of the issues mentioned earlier work their way through the system?

With Vernon Hill gone I see a barrier to the bank being bought by one of the major high street banks removed. Once bought the bank could be operated as a premium brand with branches in only those areas that they are profitable.

The Rolex of banking.
Tue 14 May 2019497pIan Smith

Metro Bank – Are RBS Or Someone Else About To Buy Them?

Metro Bank’s problems are well known and there are now suggestions that the expected rights issue could be in the £500-£600 million range which is around the current market capitalisation.

However Metro Bank are reporting a lot of institutional support for a £350 million share issue and not talking about a larger fund raising.

Over the weekend there were rumours which caused customers to have concerns about their money and deposit boxes. Although the rumours were unfounded there have been headlines about another Northern Rock which could trigger more customers to move funds over the next few weeks.

Given these issues and RBS’s status as partially indirectly state controlled bank is a sale to RBS on the cards or under discussion as a last resort?

Clearly that is not what Metro Bank wants, not what the Government wants and probably not what the shareholders want.

The trouble is that it might be that investors are thinking no more money without management changes and the management doesn’t want to change.

If the rights issue is announced this week which is reported as being fully underwritten then business as normal can resume.

Or can it, has Metro Bank lost its credibility as a bank?

Under these circumstances the FCA/PRA etc may decide that words in ears suggesting that this is the way to go to avoid a failure, it does seem unlikely and is it even a possibility?

If you are trading Metro shares over the short term then this probably isn't an issue, but if you buy now or after the share issue with the intent of holding for a while it may be. If the buzz behind the bank has gone it could easily remain a similar size for a while and just gradually fizzle out.
Wed 23 Jan 20191491pIan Smith

Metro Bank – Crashes On Not Good Enough News!

Metro Bank dropped to 1,491p or 30% on what appeared to be an okay trading update, this drops the P/E ratio to around 117!

So is this an over reaction or the case of a bank “buying” business as it doesn't have the uniqueness that it likes to promote itself as having?

Whilst Metro is mostly a retail bank with 1.5million accounts and 60 “stores” (branches) it is also a provider of commercial loans.

From the this update and the 3rd quarter report the simple numbers are £50million profit on £14billion worth of loans and £16billion of deposits, apparently the expected profits were supposed to be close to £60million.

About 33% of loans are to commercial customers, 65% residential mortgages and 2% other consumer loans and unless I am misreading the last quarterly report they seem to be allowing 0.2% of the loan value for bad debt under IFRS 9 rules!

In July 2018 Metro bank raised £300 million by issuing new shares representing about 10% of the issued shares, so a £50million profit is pretty small change and coming back for more cash doesn’t seem impossible.