Align research says it Buy12 Aug 2019 00:55
This has come out over the weekend might give the sp a little boost on Monday.
Metro Bank – current price 298p
Now this one really does illustrate the schizophrenic nature of investors as a herd. Only just over 2 months ago investors were clamouring over themselves to buy shares in a placing at 500p per share (that was itself upsized such was the demand). In the end, a gross £375m was raised. Set this against the current market cap of just over £500m and stock price of less than £3 and it seems that “Mr Market” now believes that the ex cap raising operations of the bank are now worth just £125m. Nonsense we say.
The book value of the bank is approx £1.7bn and thus as at Friday’s close one can now buy these assets for less than 0.3 times book value. These types of valuations are generally seen in the teeth of a major recession where bad and non performing loans run to 10-15% of the book. Metro’s current position is far, far removed from this. Indeed, NPL’s at the half year stage were just 0.17% – one of the lowest ratios of all the listed banks. In fact, the most recent results per HERE painted a pretty robust picture going forward with intended expansion into the Northern heartlands of England and reaffirmation of medium term guidance.
Some commentators have lamented the absence of recent Directors buying yet ignore the large participation by the BoD at 500p in May including a £2.5m ticket from Chairman Vernon Hill. At this price and with a gilded shareholder register that includes such eponymous billionaires as Steve Cohen and Michael Bloomberg I cannot believe that they are not seriously looking at the metrics of taking this private. I certainly would be in their shoes if I had their pocket depth.
The current year PE we also argue is a misnomer given write downs on the loan book. With deposits once again on the growth tack we see continued lending expansion and that 2020 profits will make this years’ PE seem anomalous.
The bank’s Tier (1) ratio at 15.8% is extremely robust and following the recent capital raise illustrates to us that Metro is more than able to withstand any Brexit No Deal turbulence (which, by the way we see as being completely overblown – akin to the Y2K worries that proved a non event at the turn of the millennium). With the likes of Crispin Odey short here, during the summer doldrums the short pack have been able to make hay. We expect this period is now coming to and end (as with the real hay making period!) as the swing to the value end of the spectrum has become extreme. Our first target here is 500p back to the placing price and as with the price move in late May post the placing that took the stock up to near 900p from the mid 4’s in the preceding weeks, we expect the rally to be extremely sharp. Buy.
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