Metro Bank — Q125 incrementally positive with strong underlying profit growth

Metro Bank (LSE: MTRO)

Last close As at 07/05/2025

GBP1.04

0.40 (0.39%)

Market capitalisation

GBP702m

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Research: Financials

Metro Bank — Q125 incrementally positive with strong underlying profit growth

Metro Bank announced its Q125 results this morning, which were broadly in line with our expectations. The company continues to make incremental progress and execute its repositioning strategy well. This quarter’s strong underlying profit growth vs H224 highlights this trend and further de-risks the investment case. Management continues to reposition the business towards higher returns, lower costs and an optimised capital structure. The focus on commercial and specialist mortgage lending should drive NIM expansion over the next two years and the Q1 results give us added comfort that the story is evolving in line with our growth expectations. The market reacted positively with shares up c 3% at the beginning of trading, immediately after the statement was released.

Martyn King

Written by

Martyn King

Director, Financials

Banks

Trading update

8 May 2025

Price 104.20p
Market cap £699m

Shares in issue

673.0m
Code MTRO
Primary exchange LSE
Secondary exchange N/A
Price Performance
% 1m 3m 12m
Abs 28.0 1.2 199.6
52-week high/low 108.6p 33.2p

Business description

Metro Bank is a community bank that serves both retail and commercial customers in major cities in the UK. It operates a network of more than 70 ‘stores’ in prime locations, a key source of new
lending and low-cost deposits. Metro Bank is undertaking a strategic repositioning towards a mid- to upper-teens return business model focused on commercial, corporate and SME lending and specialist mortgages.

Next events

FY25 interim results

July 2025

Analysts

Martyn King
+44 (0)20 3077 5700
Jonathan Richards
+44 (0)20 3077 5700

Metro Bank is a research client of Edison Investment Research Limited

Note: PBT is on an underlying basis. TBVPS, tangible book value per share. ROTE, return on tangible equity.

Year end PBT (£m) TBVPS (p) ROTE (%) DPS (p) P/TBV (x) Yield (%)
12/24 (14.0) 121.3 4.7 0.00 0.86 N/A
12/25e 57.0 131.4 7.0 0.00 0.79 N/A
12/26e 132.4 151.1 12.3 0.00 0.69 N/A
12/27e 211.7 182.5 16.6 0.00 0.57 N/A

Strong underlying profit growth versus H224

Metro Bank reported strong Q125 underlying profit growth from higher net interest margin (NIM), driven by deliberate asset rotation and deposit optimisation. Loans decreased by 6%, due to the sale of non-core loans, and deposits decreased by 4% in the quarter. This move was in line with management’s strategy to reposition the loan book towards higher-returning corporate/commercial/SME lending while concurrently lowering the cost of deposits by allowing expensive one-year term deals to fall away. We expect both of these trends to continue to be supportive of NIM expansion. As the business becomes more efficient, the loan to deposit ratio should rise, further increasing profitability.

Capital position improved with sale of unsecured personal loan book and £250m AT1 issuance

The completed sale of £584m of non-core unsecured personal loans is capital accretive and supports the rotation into higher-yielding assets. Metro Bank also successfully issued £250m of additional tier 1 (AT1) debt capital, which is aimed at optimising the capital structure and providing further flexibility for targeted growth. Importantly, the cost of the AT1 issuance is built into management’s existing guidance. Not within this guidance is the potential for changes in the minimum requirement for own funds and eligible liabilities regime. This remains uncertain but has the potential to meaningfully enhance return on tangible equity (RoTE).

Valuation: Further re-rating potential

Although Metro Bank’s shares (and bonds) have performed strongly over the past year, as investor confidence in its strategy has grown, the FY25 P/TBVPS is 0.79x. Even without an expansion in the TBV multiple, despite the prospect of a mid- to high-teens RoTE, the share price implies a c 14% per year return up to FY28e.

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United Kingdom

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