Member Info for Theborn

https://www.forbes.com/sites/samuelleach/2019/03/04/the-banks-of-brexit/#1c7f349f4e9f

Not that the author is anyone of note but the final para. encapsulates my views:

Metro is currently trading at a 39% discount on the share price based on the intrinsic value of future cash flow value. With the current price sat at £9.12 and the future cash flow share price predicted to be £14.93 it makes an interesting stock to watch. Secondly, we have seen the bank report underlying pre-tax profits of £50m for 2018 up 140% on the previous year, but lower than the £59m forecast by analysts. 2019 is looking at 34.4% annual growth on earnings, which is very explosive and with the share plunge, we could see a potential 50% move higher from the current price of £9.12. In times of shock news, we see shares overreact in price short term, and there could be room for a correction back to true value, only time will tell but for sure a great stock to add to your watchlist.

I bought in yesterday for the first time as I can't see the SP sitting below the 330 NAV for more than a few weeks. Not that I hugely rate PH but their guidance at £3.50 is reasonable on this. The change in mix will result in a more cash generative business in the medium term and the fall below £3 was a complete overreaction in my view. At present level the div yield on this year alone is 6% so happy to take the income and realistically a capital uplift of 20-35% in the next 12 months.

http://www.stockmarketwire.com/article/6329529/Broker-Forecast-Peel-Hunt-issues-a-broker-note-on-Telford-Homes-PLC.html

I understand why existing holders would be annoyed at the dip but recently markets have been hugely overreacting to 'profit warnings' without considering the full circumstances.

http://www.stockmarketwire.com/article/6332263/Broker-Forecast-Goldman-Sachs-issues-a-broker-note-on-Metro-Bank-PLC.html

If it’s the former then those buying in now in the longer term should see high multiples on return. If it’s the latter then we all lose our shirt and the shorters can say laugh at us and say ‘I told you so’. Willing to take that risk.

I also highly doubt the institutions were given a heads up on this announcement as an invite to short to allow them an opportunity to recover a portion of their losses on supporting at £30+ share price in the past. Then we’d be in serious trouble wandering into insider trading territory. I just think these guys are a growing challenger bank getting a lot of things right on the core business growth and customer interaction but have made a moderate error in the RWA calc followed by several minor errors in the announcement of the capital raising and then bringing forward the results at the last second (with a typo for the date on the RNS). The media has rightly had an absolute field day with this - a bank? fkced up in some way? FCA might be involved? Share price is still diving? The perfect red top headline. Sticking it to those investment bankers. When in reality this is a growing challenger retail bank which will make the odd slip along the way but I don’t believe anything of the past week changes the 5 year plan materially. They’ll either be a name on our high street for years to come or will disappear out of site. Based on their profile amounts SME and retail customers and the satisfaction surveys I’ll go with the former. But some will say latter.

*no major cause for alarm!

Key risks now:

- FCA checks. My genuine view is will come to nothing in this instance but either way will rumble for a few months, but now major cause for alarm.
- £120m grant funding pulled. Won’t happen. Last thing Govt want is a spooked banking sector, particularly banks who are backing SME lending. Expect a reiteration in the coming days that the funding won’t be withdrawn.
- Pricing is the equity raise. My guess is as good as the next but suspect you’ll get a update saying it’ll be communicated in Q2 meaning the panic will stop and let the price settle. They’d have announced it yday if they knew the pricing and aren’t calling cash until Q3
- Housing market. Been overlooked somewhat but in fairness to Metro they are a very conservative underwriter but doesn’t mean a big Brexit property price fall won’t further spook investors. Again, can’t see it based not their book profile.

People will be calling for heads to roll but at times like this it’s sometimes better to let mgt learn their lesson and move on. CEO won’t have had any input into RWA calc, the FD will be on the block for that. The business is performing and for the reasons above I don’t feel the doomsday scenario is imminent. If it was then there is not point buying at any price!

As I said, key is now for the minority holders to stop panicking and hold firm. If they do that their are more buyers on this than sellers and price will rise.

Buys still outweighted sells 4:3 today in £ terms so demand at this level is strong. MMs shaking the bush to fill orders pushing the price down. If the blind panic from some sellers stops the floor will fully kick in which seems may have happened just before close. Agree with a lot of comments here that more clarity should have been given by the BOD on the cash call. FCA/PRA claim won’t come to much but will take 12 months plus to resolve and will be forgotten in the meantime. The problem today is the press coverage causing mad panic. Could well dip a little further if people keep losing their shlt but I’m a strong buyer at £10 with a 6-12 month view. Need the equity holders to be brave this week to start a price recovery.

The equity alone held on the balance sheet is nearly £3, so a fall to £3.15 doesn't make any sense.

A potential (significant) share price increase on Wednesday's announcement will be predicated on:
- The actual Adjusted Earnings for the year still staying between £151 - £166m and not outside low end (following their update where they said they'd be more towards the lower end);
- Target earnings for 2019 being higher than 2018, and ideally in a range covering £200m, which should be perfectly reasonable;
- Dividend reinstatement at any rate, but the closer to 1.4x cover the better.
- Positive update on negotiations with FCA re incentivising staff on old debt recovery (although my view is this is relatively immaterial in terms of value but market will like it);
- Positive update on ROP being almost completed and progress on Moneybarn investigation coming to a head.

If all these boxes are checked, which they could be, then I'd expect a bonkers reaction to share price akin to last year which saw 150% increase in the first few hours of trading falling back to c.80% rise for the day.

I think even posting Adjusted EBITDA of £150m, a uplift on target for 32019 and any form of dividend will see 10-20% rise in price.

I've said before, based on all the info available at £5 the shares are significantly undervalued.

Market has lost its mind completely on this.

Loading up at this price and will count the 13 days until the FY initial release repeats what PFG have already told us in the H2 interims + Q3 & Q4 trading updates, announce a target range for 2019 of £200m-£225m PBT (knowing the one off restructuring / fine have been taken already in 2018) and watch the share price immediately bounce to >£6.

Usual caveat of historical trends are no indication of future performance but exactly a year ago the SP plummeted to £4.30 in the run up to 26 Feb announcement. Announcement was as expected and share price immediately bounced 70% to £7.20.

DYOR but get in while you can.

Nuts.

Per 2018 interims:

Shareholder equity £678m. Taking this over the 253m shares in issue = £2.70 of asset value per share on B/S at that time.
Assuming a statutory PAT for H2 2018 of c.£50m = £0.20p of further asset value per share on B/S.

So on a current share price of £4.95....nearly £3.00 of that is current value.
Meaning future return prospects are priced in at only £2.00?!?

I know PFG have had their issues but I struggle to accept there isn't a huge market overreaction here, regardless of the 'profit warning' which wasn't a profit warning in the traditional sense. PFG stating adj. profit 4% lower than the mid range (but still within the full range) has knocked 25% off the share price. Madness.

With the bulk of the regulatory and home credit issues put to bed, plus even factoring in tightened underwriting and borrowers being cut some slack on payment arrangements, there is no reason PFG won't be forecasting (and hitting) adjust profit target of >£200m for 2019 (on basis of Vanquis / Moneybarn zero growth and Home Credit not adding anything to P&L)....this is 80p per share.

Any way I look at it, going long at any price close the current £5 represents significant RV opportunity and risk adjusted upside.

No doubt the PFG Board will make me eat my words by announcing 2018 figures below the £151m bottom end on adjusted P&L, but regardless of that, the future value here is still very appealing.

Viewing on a medium term time horizon there is a very real chance the share price will double, if not treble, on today's value if they continue to work with the regulator and focus on sensible underwriting. Factoring in a dividend policy of paying out c. 70% of PAT I can't see many other income and capital cash cows available at this type of value.

I've been monitoring PFG closely since their disaster 18 months ago. I bought in c.£20k just prior to the interims and trebled that position last week when the market lost the plot and price crashed to sub-£5. Having observed the share price and company progress over these 18 months a few things stand out consistently:

- The share price is consistently undervalued. My view is this is partly because nearly 80% of the share are held by PFG's four key institutional investors so the remaining 20% of share are traded in a very volatile way and impacted by people who think they are day traders yet are only putting £500-£2,000 buys and sells in. The people aren't valuing the company properly and are hoping to make a quick buck on volatility.

- Market makers aren't idiots. It doesn't take a rocket scientist to work out the best way to make easy fees on a spread on a company which rarely issues updates is to spike or dip the price to flush out all the idiots who fall into the 'I think I'm a day trader' bucket above. If these people see a 5% dip in share price on the back of no news they fear the world is ending and sell meaning the price suffers even more.

For those of you who don't already, I advise you keep an eye on the short positions held in a company: https://shorttracker.co.uk/company/GB00B1Z4ST84/ . You can see that 5.86% of PFG stock was held on short positions as at 31 October but now only 4.57%. This is a very positive sign. If you know of algo trading funds, the likes of Systematica or Marshall Wace, their algos pick up on the idiot day traders' sells above and then increase their short positions to profit - even though this is nothing to do with fundamentals or news from PFG - its based on these panicked wannabe 'day traders'.

All those points above mean the stock, in my eyes, it currently 30-40% undervalued on current information. Should things continue as they have been then there is no reason in the medium term why old share highs can't be achieved.

Every time I see a fall based on no real news I remind myself of the above and if falls stupidly low then I buy more like last week. I then remind myself of the positives:

- Institutional investors have held firm ever since the original disaster. They always have a longterm view and if the biz was to go pop we'd have seen significant sells.
- Complete change in management structure. Look at the new additions to the Board and senior positions on the website. These are people with strong reputations who would not be risking them on a lame duck whilst also being able to add significant value to controls and new operational practices.
- Embracing the FCA which was clearly demonstrated today. Back to reputations, the new team will have seen this as the most important issue to resolve for the business to progress and its clear that dedication is paying off.
- Collapse of other player like Wonga opens market
- 6 months consistent positive messaging

If you are going to buy -

My guess is the market hasn’t registered this yet. RNS should go out 7am so everyone sees. Releasing late lunch time Friday when a lot of people are in the pub or closed positions for the day means it’ll get missed.

It’s not even been picked up by any standard market news sites yet either unless they’re linked to RNS.. Judging by the minimal trading I just don’t think people have seen it. My guess is >£6.25 first thing Monday morning.

This is another positive message in a line of consistent positive messaging over the past 6 months. The change in CFO was clearly done prior to announcing this so the market sees it’s a completely new team from top to bottom working in tandem with the regulator. A new era if you will.

Clearly the variable comp aspect is the next piece of the puzzle along with returning to profit and dividend. Once that happens in Q1 2019 we should see the stock closer to £10 with no reason not to track closer to £20+ over the next 18-30 months.

Just announced. Suspect at least a 20% uplift on share price.