Shares in Metro Bank traded lower on Wednesday morning despite the bank delivering impressive deposit growth of 1 billion pounds in the first quarter as heady valuations tempered investor appetite.
The shares were off by around 1 percent by 11:00 a.m. local time, interpreted as being on account of both lofty valuations and product pricing weakness. The bank's deposits rose 13 percent for the quarter to 9 billion pounds ($11.4 billion), their cost slipped from 66 basis points (bps) in the last quarter of 2016 to 61 bps for the latest three month period.
"We've had the best quarter we've ever had. The momentum has really grown with Metro Bank every quarter. Whether its deposits or loans, our earnings are growing. We're very excited that this month we'll pass one million accounts - that's sort of a magic number for a company that started from scratch," he enthused.
Yet it was not only investors displaying apprehension – analysts at Panmure Gordon also expressed their concerns that valuations may have run ahead of operational reality in a note to clients on Wednesday morning.
"Although we expect Metro Bank's profitability to trend towards their stated return on equity (RoE) target of around 18 percent by FY2020 driven by good loan growth and improving operating leverage, at a price-to-total book value multiple (P/TBV) of 4.0 we believe that this is more than discounted in the current share price," said Shailesh Raikundlia, equity analyst at Panmure Gordon.
"We prefer banks that are already generating around 20 percent returns and trading at much lower valuations," she added.