Will momentum continue for the FTSE 250’s newest members Metro Bank plc, CMC Markets plc and CYBG plc?

From IPO to FTSE 250 (INDEXFTSE:MCX) in under a year: can Metro Bank plc (LON: MTRO), CMC Markets plc (LON: CMCX) and CYBG plc (LON:CYBG) keep rewarding shareholders?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The latest quarterly review of the FTSE indices saw the promotion of challenger bank Metro Bank (LSE: MTRO) to the mid-cap FTSE 250 index after share prices rose 5% from their March IPO. Metro Bank has been riding the momentum of a strengthening domestic economy and a customer service-focused marketing campaign that led to deposits jumping 15% quarter-on-quarter in Q1 alone.  

Analysts and management are expecting the bank’s momentum to continue and have pencilled-in its first profit for fiscal year 2017, a major success for a six-year-old bank. Still, with only 41 branches open and £5.9bn in deposits, it remains some way behind the target management originally set to have 200 branches and £50bn in deposits by 2020. The bank’s slower-than-expected rollout can be blamed on the relative stickiness of customers who rarely shop around for better deals once they’ve chosen a bank.

Yet the UK’s retail banking industry is massive and challenger banks have significant room to grow market share in the coming years. If Metro Bank can continue to grow loans faster than deposits, as it did over the past year, I see no reason for momentum to slow as long as the economy continues expanding.

Growth play

Online spread betting and contract for difference trader CMC Markets (LSE: CMCX) also vaulted into the FTSE 250 on the back of a 15% rise in share prices from its February IPO. CMC has taken advantage of the growing market among retail investors for forex, commodity and equity trading.

The company releases its annual report later this week, but its pre-close trading update raised expectations with the disclosure that the number of clients grew 13% and revenue per customer increased as well. Much of this higher revenue will filter straight down to the bottom line thanks to enviable adjusted pre-tax margins of 36% in the last fiscal year. As long as regulators don’t crack down on retail investors betting on the movement of currencies or commodities on margin, CMC’s growth doesn’t look set to stop anytime soon.

Rocketing shares

The holding company for Clydesdale Bank and Yorkshire Bank, CYBG (LSE: CYBG), joined the FTSE 250 this week thanks to shares rocketing 46% from their February IPO price. Recently spun off from its Australian parent, CYBG is looking to establish itself as a relatively boring retail lender, much like Metro Bank. Going forward though, CYBG has significant fat to cut in order to match the returns that the larger domestic banks post.

The combined banks’ underlying cost-to-income ratio in the past six months was a worryingly high 72%. Bringing down these significant operating costs will be key for management going forward as the persistent low interest rates from the Bank of England limit lender’s net interest margin, the difference between the rate it charges for loans and the amount it pays on deposits. If the bank can make progress on cutting costs and continue to grow its loan book, CYBG should continue to perform well as long as the bottom doesn’t fall out of the domestic economy.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »