Member Info for Chatbot2

Its hard to see who those investors would be. Kernow, the smallest of the investors that own 3% or more of the stock sold down a bit in September, but no other moves noted in RNS, and no one new taking a position of 3% or more. So the biggest holding other investors could have is £20m - so not really something that ought to register among serious investors. Of course this share price can move substantial on the basis of a few thousand shares. My guess is post the Barclays analyst target of 70p (which is basically an analyst that has not properly understood the stock, having to shift positions based on market reality) a few primarily retail punters have decided to cash in.

Thanks ManU- that is kind of you to say- although I also think the feedback on verbosity is fair too! TBH I am pleased retail investors have made money since April. It just grates that if it were not for mismanagement we should be dividing a £1b valuation by 172m yet that management are still in place, with one likely to walk away with millions in ill gotten gains.

Happy to continue friendly debate on this if it is not annoying everyone. But 5, the shareprice reflects the net present value of future cash flows. By its nature it is a future looking thing. Your comments about "The Future" make no sense.

But I agree that 93p is cheap if you believe the bank will be worth £2b in 2027. It is fair value if you think it will be worth £1b. What intrigues me is on what basis you think "the market" re-rated. Aside from unsustainably low loan losses, the H1 results were poor. Where is the delivered performance ? Is it just cost out? Because it looks to me that they are firing people, but costs keep coming back in. So what did you see in the H1 losses that changed your view?

Five- you wrote a message not long ago suggesting the share price should be £28. I write notes looking at the fundamentals as a counter point to people making such dubious forecasts, so that amateur investors are not sucked into believing there is a credible basis for such optimism . And to be clear I do not think that the bank will be valued at £2.97 a share in 2027. I am just saying that is not beyond the realms of credibility. All this Mozo this and Starling that is just nonsense- Metro was seen as a high growth stock in 2018 because it was growing current accounts at 20% a year and had a proven method of doing so. Now it is losing those accounts hand over fist. Cutting costs and swapping into high risk assets restores profitability but does not warrant a growth multiple.

So simply put, if everything goes to plan both externally (rates stay up, no credit down turn) and internally, (no execution issues despite the fact that the management team have a hopeless record) then the share price in 3 years time might get to £2.97. So the £5 a share in the near term, which was the original question is super optimistic and I think you were aiming for £20 with your interesting interpretation of the GGM. I am just responding with proper analysis to a fair question. But it is true to say that this is a thinly traded stock, open to manipulation both ways. So it could go as high as £5 if that is what "the market" supports. But as they say, "in the short run the market is a voting machine, but in the long run it is a weighing machine."

Certainly five. In finance we have this concept called "time value of money." It means that something worth £2b in 2027 is not worth £2b today. Lets take it slowly- In 3 year's time the bank is valued at £2b. With 672m shares that is indeed £2.97 a share. But in todays money, with a 20% discount rate, that £2b is valued at £1.16b. Divide that by 672 and you get £1.72p a share. Simples. In terms of the discount rate, of the current brokers, Barclays uses a 15% CoE for Metro, RBC uses 20%. Senior debt has a coupon at 14%. 20% is if anything pretty generous. But perhaps you can enlighten us on what discount rate the IR team are using?

To be clear Metro don't provide guidance on forward EPS. But you are right that "upper teen" ROTE in 2027 would imply profits of between £200-£250m if we assume that TE is about £1.2b. That is possible given the large balance of unhedged fixed rate assets set to roll off. But that momentum will run out and I don't see there being a huge growth multiple thereafter (other specialist lenders typically around 5-7x earnings). So my maths below assuming a value of c£1b in 2027 not far off. Could you get to £2b? At a push, but you would have to believe they can out compete the specialists and keep hold of their low cost deposits, which have been leaving in droves.

And then you have to look at the risks to determine an appropriate discount rate. Under Frumkin the P&L has been 2020: £311m loss 2021: £245m loss 2022: £72m loss; 2023 £30m profit- but only because of debt writedown without which it would have been >£50m loss. And 2024 will be a £130m+ loss. So he has burnt through >£700m of tangible equity in his supposed turnaround- a period where base rates should have gifted the bank >£400m of revenue p.a. The new strategy of going up the risk curve, slashing front line services and outsourcing IT is hardly lower risk.

So I would have a discount rate of atleast 20% on 2027 value with this management team. So optimistic NPV on a £2b valuation in 2027 gets you to about £1.70 a share. Can't see how you get to £5.

Strictly speaking there were 90m shares when it was £40 a share (so peak value about £3.8b). An equity injection in 2019 took share count to 172m and the 2023 recap up to 672m.

In terms of potential value, worth recognising how the re-rate changes the relative valuation of Metro. At the recap, the bank was valued at 30p a share (market cap of c£200m) with a tangible book value of c.£1b so 0.2x book value. At 90p a share and assuming a statutory loss of about £130m for 2024, its worth £600m on around £830m TBV so around 0.75x book (so better than say Lloyds, despite the fact that Metro will print a big statutory loss this year).

But valuing the business at around £600m is not crazy. If the bank delivers what it says, then in 2027, it would be making about £200m profit on c.£1bTBV. So valuing it at £1b at that point in time (5x earnings/ 1x book) is not unreasonable. Discounted at a 15% CoE would put it at £675m today so £1 a share.

The big IF is if it gets there without further dilution. Its not so much that it could not deliver the margins if rates stay as projected. It's more that it is running very tight on capital. Any significant credit downturn, or an issue with its risky IT outsourcing deal or another regulatory issue would likely require a capital injection. Frankly I am surprised the regulator is letting them run so tight on capital- not sure when they have to do an ICAAP with all the SME/CRE lending they are projecting. But I would be surprised stress testing that book didn't result in a material Pillar IIA add-on.

I was wrong before, assuming the price would stay low until Galinski recapitalised. And I may be wrong this time, but I think the people who bought in at 30-40p have got the lions share of the value from Metro actually getting some value from the base rate rise. I cant see fundamentals supporting anything above £1.20p a share tops.

So to answer your reasonable point Parkerboules, at £40 a share on a share count of 90m the total bank was valued at £3.6b in 2018. It was achieveing double digit growth, and you could get away with >5years of that before you had to put in a terminal growth rate of 2-3% so the valuation, while optimistic was not heroic. But the main point is that now the sharecount is 672m and likely to get to 1,000m. So five reckons teh bank is worth about £20b. I am afraid that is laughable, as is his strange conflation of ROE and growth and a misunderstanding of how re-investment rates impact GGM valuations. To your point, it is good (for those who have recently bought in) that the share price is going up. I have no issue with that and could back into the current SP without making heroic assumptions. But while at 30p there was a lot of upside, at 70p there is quite a bit of downside. Galinski's talent is buying into distressed situations, and he has pulled it off again here. But I do not share your view of his capability to build a highly successful bank organically. I suspect he would like to go inorganic, and that is the risk to the minority shareholders, because he will issue capital via this entity and dilute the retail shareholders to next to nothing.

Oh dear 5. The challenge with a ChatGPT is that its garbage in, garbage out. I don't think the share price should be 37x what it is today because you are the only rocket scientist around. Its because your assumptions are a bit silly.

1) The bank isn't earning 26p a share (c£170m). Even management think that is not going to happen until 2027. And that is EPS not dividend per share, and GGM is based on dividends. So generously assuming a 50% payout, we are talking 13p per share in 2027 if you are lucky

2) GGM is based on a growth rate of stable free cash generation. Metro does not have embedded earnings growth potential of 9%. Once it gets to c£175m profit a more sensible assumption would be c2-3% growth in line with the wider banking market

3) Metro cost of equity is close to 20% today but lets call it 15% once stabilised

Put those assumptions into your model and the bank would be worth c£1.2b in 2027, NPV total about £700m so £1 per share. But that assumes it can get to £175m profit without new share issuance- which is unlikely.

Thanks for the q

I give zero credence to CEO's bullish rhetoric. As noted previously the "upgraded guidance" is simply a repeat of the guidance in the 2023 prospectus. Guidance went "down" when they didn't sell the mortgage book and went back up when they decided to sell it. But as per previous commentary this is all smoke and mirrors, because what is put on in additional NIM in 2025 and 2026 from redeploying those assets already comes off capital on completion of the sale. So from a value perspective it is negative. But I don't think anyone thinks the CEO is running the bank anymore. And Galinski has clearly got a strategy of slashing costs which "the market" is buying into.

But there are 3 issues i have with a positive outlook. 1) They have fired 1,000 people but costs are pretty much flat from H1 2023. Costs are clearly coming back in somewhere, probably expensive consultants and there is still a lot of tech debt ; 2) Post mortgage sale total capital (inc. MREL) will be down at £1.5b- with a min 21.2% requirement they max out at £7b of RWA, which is less than they had before the sale- so zero capacity for RWA growth (or material additional losses or capital expenditure) without fresh capital; 3) Most critically, this is a bank that was built to grow current account and related low cost deposits. For all its faults it was doing this pretty well up to October, and this is ultimately what made the bank of interest to (and distinct from) specialist lenders. The restructure has essentially given up on retail current accounts, and is gambling on growth via larger commercial accounts, but showing absolutely no sign of getting them (commercial deposits shrank substantively alongside retail). They have stopped publishing new current account volumes, presumably because they are massively down.

Per marabs comments, cutting costs is the fastest and most controllable path to profitability- But then all you have is a subscale, barely profitable bank. if you start to see commercial current accounts growing fast, you can start to put a reasonable multiple on the bank. but so far no sign of this, or a credible management team coming in.

So my only conclusion is that this is a closely held stock which had prior to October been hugely undervalued because it suited certain investors to keep the price down, and since June has rocketed upwards because the opposite seems to be true. This is a puzzler for me, as I assumed that those parties would want to dilute down the retail base at a low price first. But maybe the regulator made clear that it would have to go private, and these days I'm not sure many investors want to hold something illiquid with an uncertain path to IPO. So next best option is to encourage the price up. But at some stage the capital has to come in and that will be the test of how sustainable the current SP is

Any chance we can leave this nonsense to other channels? In 2018, the share count was 90m, the bank was growing at 20%+ per annum and forecasting profits of £650m off of a deposit base of £55bn and a book value of c£3.5bn by 2023. That was heroically optimistic but sInce Frumkin took over, growth has stopped in its tracks, with no capital available to grow with the bank yet to make anything other than a technical profit (through writing down debt) and no meaningful earnings till 2027. It has a book value post mortgage sale of about £0.8b. We can argue about whether its worth 30p or £1 but suggesting it could go back to £30 is very silly

Basic corporate finance would say that a business meeting its cost of capital is worth 1x book value. Metro cost of equity is around 15%. So if we think in 2027 the bank is making 15% ROTE on a book value of say £850m (taking into consideration the £100m write down yet to be taken through the P&L for mortgage sale) then in 2027 it would be worth £850m. NPV with a 15% discount that is £450m today- so 70p a share. There are a number of big "ifs" with many analysts, myself included believing the bank needs more equity. If Galinski put in £150m at say 40p a share that would add another 375m share. So simplistically, if that equity injection boosted equity to £1b and still allowed a 15% ROTE then the NPV would be £570m but the share count up from 690 to 1067. So SP would be 53p

From what I can see, Cauis were all out on the 31st July.

Just to confirm, Cauis were the holders of Metro T2 debt who led the shorting of the stock in Sep/Oct which enabled Galinski to dilute us all out at 33p. They sold down most, but not all in Nov. Decided to sell out of the last of their position on the 31st July despite shocking half year results,. But strangely there was an inexplicable uplift in the share price...

There is no point talking fundamentals for this one. People quoting P/E ratios on a loss making stock and TBV of £1.37 (a quarter of what it was in September) clearly don't understand fundamentals. But that doesn't really matter with this one. Its a closely held stock and one for those with the inside track, but you need to be careful. This bank is running very light on capital, and there will come a time when it is much harder to push the share price uphill.

We are all up 30% from 2 months ago. And to be honest, I am fully out at 50p which I thought we would only get through a sale.

Its just galling that the primary beneficiaries are an incompetent CEO who cost the original retail shareholder a genuine opportunity to hit £3 a share, and an opportunistic billionaire, who, being generous "took advantage" of the shorts to dilute the retail shareholders to next to nothing.

But you are right. Lets just crack open the champagne for getting half our money back, and move on. But I fear, if this doesn't trade soon, the shorts will be back when the bank needs more capital, probably in Q2 25. But I am out so not one for me to worry about.

Good luck all, particularly the original investors

Rome wasn't built overnight- But in the 4 years of Frumkin's tenure he has burnt through £1.6bn of core equity, added £200m to the cost base, seen customer satisfaction rankings collapse from the best in the market to 5th or 6th, employee morale on its knees, and a failure to generate profits (other than technical profits from writing down debt). This is during a period when base rates rose 5% giving an endowment effect of £400m on the £8b current account book, if the guy actually understood how to hedge interest rate risk. And he then managed to lose nearly 30% of those hard-earned current accounts by prompting a run, after an inexplicable bet to rely on IRB rather than recapitalising when he could have easily put the capital to work writing mortgages at 150bp spreads. He hasn't built Rome, he has sacked it.

Very curious market response. Losses were c.£15m less than I predicted but that was almost exclusively down to abnormal credit losses which will come roaring back if the bank actually start putting on net new business in commercial.

The "upgraded guidance" is laughable. Of course if you write off just over £100m (10%) of tangible equity to accelerate roughly £80m of NIM benefit in 2025 you will improve ROTE. But that still makes it a value destructive deal. More ridiculously in October they were already guiding high single digit in 2025. That didn't stimulate a re-rate and there is nothing here that surprises to the upside (other than nothing falling over yet)

In terms of momentum, in the H1 results in 2023 the bank had a NIM of 2.14%, nearly £8b of current accounts, costs of £258m .profits of £16m and tangible book value per share of £4.43 on £815m of TE. It was valued at £190m

This year the NIM is 1.64%, current accounts down to £5.6m and shrinking, costs at £255m and £33m of losses on a TBV per share of £1.37 on £937m of TE (so will be c.£830m or.£1.20 per share post mortgage sale) and is valued at £330m

That the share price has risen is a good thing (I am out at 50p). What riles is that this clearly shows that the "IRB" issue last year should have had only a negligable impact on value, but instead saw the collapse that afforded certain parties the option to dilute us all at 33p. Now we see shares rocket on nothing in the results. Looking forward to seeing what the analysts say to justify this, but you can look at "Zak's(?)" charts as much as you like, but if you want to know where the share price will be in 6 months, you know who to ask.

What it does suggest is that Galinski wont be putting in capital anytime soon. But the bank can't grow income substantially without it, particularly in a falling rate environment

500k buy at 39p today, Given the s.p. has consistently taken a material hit after every half or full year report under Frumkin a counter intuitive play. someone knows something, I strongly doubt it's a miraculous return to profitability....Maybe a transaction, or maybe Frumkin is quitting...

Could this be A commercial decision to raise 3 to £4 billion to allow for new lending at a higher interest rate therefore offering a better rate of return for the funds raised. Your thought?

That is the basic premise (although I suspect a lack of capital means that they will redeploy funds in cash rather than lending). But basic principles of corporate finance tell you that the simple interest-rate swap should be value neutral at best - i.e. as per my note, you take a £120m hit to core equity straight off in return for £60m more NII p.a. But the latter is not in perpetuity- I think the average remaining tenure on the book is around 2 years. It looks more like a move to shore up a capital position heading close to MREL buffers than an opportunity to meet untapped lending demand (look at how lending collapsed in Q1)

Beyond the maths this suggests

1: If rumours of a transaction were what lifted the sp to 40p, it looks like that has gone away (further evidence that a deal can not be done with Frumkin in place)

2: The bank looks to be running very tight on capital BUT Galinski is not looking to put more in yet, to dilute down the retail base, which i thought he would do. That suggests he is either not confident enough in the underlying business, or he wants to so a transaction himself, or he is just biding his time to raise equity some time after a poor half year pushes the sp down further

3: Expect further desperate cost reduction measures, which will further limit the bank's ability to raise low cost deposits and deploy funding into anything other than cash or high risk commercial

This is looking desperate