How much is a dog biscuit worth? A lot, if you believe the contents of documents sent to shareholders in Metro Bank ahead of its listing on the London Stock Exchange in March.
Since its launch six years ago, the first new lender to hit UK high streets in more than a century has done a tremendous job – in public relations terms, if not yet in profitability – of punching well above its weight.
Metro Bank has already lined up £500m-worth of demand for its stock, which it will raise in a private placement ahead of the flotation. Such is the zeal with which its largely US-based investors follow Vernon Hill, the chairman, a top-up offering to secure an additional £100m is also likely to be utilised. That will take the total raised since launch to £1.2bn, despite the fact that the height of its short-term financial ambition remains to stem the flow of quarterly losses.
There’s valid reason for investors to be believers: Hill made many of them a lot of money by building Commerce Bank in the US using a similar strategy.
And Metro Bank’s customer service-led offering have won plenty of plaudits. Quarterly losses did shrink in the final quarter of 2015, when it added more than 50,000 customer accounts. It has firm plans to nearly treble the number of ‘stores’ within five years.
Yet a likely valuation on listing of between two and three times Metro Bank's book value still looks too rich.
Hill himself protests that investors who see Metro Bank as “just another bank” miss the point. Not really. You need only skim the pages of risk factors to find his company is subject to the same reputational, regulatory and competitive threats as other banks.
The absence of red ink for legacy misconduct is a distinguishing factor, but it is insufficient reason for such a valuation gulf. Industry data suggests a likely acceleration in the pace of change in customer behaviour; Metro Bank has yet to prove that its digital offering is superior to rivals’.
There will be other growth avenues. If ‘store’ growth stalls, its chairman’s predilections means it probably won’t be long before Metro Bank pops up in your local Pets At Home shop.
HONING IN ON HOHN
It has always paid to listen to Sir Chris Hohn. That view was reinforced when his TCI hedge fund returned a market-beating 14 per cent last year.
So investors will have taken note of his unusually bearish tone on a call several days ago.
No single risk concerns him, but the cocktail of a slowdown in China, the oil price slump and the prospect of further US interest rate rises have prompted TCI to cut its net equities exposure. Brace for the bumpy ride to continue.
OIL MEDIA FIRM’S BUYER GLUT
Who said the heat had evaporated from global energy markets? The frenzy of interest in buying privately held Argus Media, which provides information on the oil industry, suggests otherwise.
The field of bidders – which includes Apax Partners, Charterhouse, Cinven, New Mountain Capital and Silver Lake, to name only a handful – was this week being winnowed to to a more manageable second round.
Central to the auction’s outcome, I hear, may be Larry Neal, former president of Platt’s, the energy news service.
Neal, who in 2015 retired from Platt’s is being courted by several of the private equity bidders, as are some of his ex-colleagues. Let battle commence.