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Metro plan fails to convince

Full-year results describe a painful 2019, and highlight the challenges to come
February 26, 2020

At this point, few reminders are needed that 2019 was an abysmal year for Metro Bank (MTRO). Full-year results outline the full damage regardless. A £68m write-down on intangible assets, combined with a surge in depreciation charges and operating expenses, collectively meant total costs exceeded income by 29 per cent. Underlying operations were equally weak, as the average net interest margin sank 30 basis points to 1.51 per cent.

IC TIP: Sell at 161p

Throughout this time, Metro has fumbled for a plan. Newly installed chief executive Dan Frumkin has wasted no time laying out a revamped strategy that he hopes can lead to a statutory return on tangible equity above 8.5 per cent by 2024.

Chief areas of focus include plans to improve the cost-efficiency of new bank branches, although expansion plans have again been scaled back. Metro has again said it might sell some of its loan book, although the overhaul was light on details to further diversify funding.

With retail mortgages climbing to 71 per cent of all lending, a pivot to specialist mortgage, unsecured and SME loans sounds sensible. However, prospects for the latter have been trimmed by a decision to return £50m of the £120m it was controversially awarded last year under remedies designed challenge RBS’s dominance in small business lending.

Consensus forecasts are for adjusted losses of 8.9p per share this year, and 3p in FY2021.

METRO BANK (MTRO)  
ORD PRICE:161pMARKET VALUE:£277m
TOUCH:159-161p12-MONTH HIGH:1,549pLOW: 155p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:918pLEVERAGE15
Year to 31 DecTotal operating income (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2015*120-56.8-83.0nil
2016195-17.2-22.0nil
201729418.712.8nil
201840440.629.1nil
2019416-131-124nil
% change+3---
Ex-div:na   
Payment:na   
*Pre-IPO