How are 2016 IPOs Metro Bank plc, CMC Markets plc and Hotel Chocolat Group plc faring?
Shares of Metro Bank (LSE: MTRO) are 5% below their March IPO price, slightly better than the FTSE 350 Bank Index. Aside from the general malaise surrounding banking shares, Metro’s first trading update since the IPO was full of solid results. Quarter-on-quarter, assets rose 20%, revenue bumped up 11% and losses narrowed from £10.2m to £7.9m.
At this pace, attracting 62k customers in the past three months alone, the bank plans to be break-even at the end of this year and turn its first profit in 2017. However, management appears to have dialled back on its previous target of £50bn in deposits and over 200 branches by 2020 as the company currently only has £5.9bn in customer savings and 41 branches open. This is worrying for a company that has billed itself as a fast growing retail firm with an outsized market cap of £1.6bn. At an inflated valuation and with deposits still well outstripping loans, I’ll be watching Metro Bank closely but won’t be taking the plunge until further results are posted.
Growth star… or not?
Spread betting and contract for difference trading firm CMC Market’s (LSE: CMCX) shares are up 7% since their February IPO. The company’s latest trading update before its annual report also kept expectations high as it reported a 13% year-on-year increase in client growth and higher revenue per customer. This comes on the back of solid full-year 2015 results that saw revenue increase 17%, and earnings jump a full 44% as pre-tax margins rose to 36.1%.
With astounding growth such as this and a 3.8% yielding dividend, one would expect shares to be very highly valued. Instead, they trade at a sedate 13 times forward earnings. One reason for this is the ever-present threat of regulatory interference in a business model that allows retail investors to trade commodities, forex and equities on margin. The outcry following the steep retail losses in early 2015 when the Swiss unexpectedly devalued the Franc leaves the possibility that regulators may take action if such an event were to happen again. Aside from regulatory concerns, shares trading at a significant premium to competitor Plus500 also lead me to stay away from CMC.
Provider of premium chocolate Hotel Chocolat (LSE HTOC) appears to have significantly underpriced its Tuesday IPO as shares are already trading at a 40% premium. The market’s positive reaction to the company isn’t very surprising given its already comfortably profitable and is hoping its second go at international expansion works better than last time. Over the past half year, the chocolatier brought in £11m of EBITDA on £55.7m in revenue, which isn’t bad for a retailer.
While the founders allocating most of the £55m raised to themselves isn’t great, they’ll still own more than two-thirds of the company after floatation. And the £12m raised for the company will be wisely used to expand the Cambridgeshire factory, improve digital offerings and invest in new stores. While shares are now looking pricey after their post-IPO pop, Hotel Chocolat remains an interesting company to watch given its customer loyalty, high pricing power and growth potential.
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Ian Pierce has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
Shares of Metro Bank (LSE: MTRO) are 5% below their March IPO price, slightly better than the FTSE 350 Bank Index. Aside from the general malaise surrounding banking shares, Metro?s first trading update since the IPO was full of solid results. Quarter-on-quarter, assets rose 20%, revenue bumped up 11% and losses narrowed from £10.2m to £7.9m.
At this pace, attracting 62k customers in the past three months alone, the bank plans to be break-even at the end of this year and turn its first profit in 2017. However, management appears to have dialled back on its previous target of £50bn…