It’s not every day you see a hot FTSE 250 growth stock collapse by 30%, but that’s what’s just happened to Metro Bank (LSE: MTRO).
Fellow Motley Fool writer Rupert Hargreaves has suggested the challenger bank’s share price could have further to fall as the uncertainties of 2018 were weighing on it, but I’m sure he didn’t expect to be quite this right!
Mixed results
It’s all down to a full-year results preview, which revealed big rises across the board, leading to a 138% leap in underlying pre-tax profit to £50m, with underlying EPS up a massive 111%. Deposits were up 34%, loans up 48%, and the bank’s assets swelled by 32% to £21.7bn.
But the shock news is the firm has admitted that an accounting error led to some loans, including some commercial mortgages, to be assessed in too low a risk band. Risk-weighted assets now stand at £8.9bn, way up from £7.4bn in September, and nearly £1bn higher than analysts had estimated.
More cash needed?
What that all means is that the bank has failed to hold enough backing capital, and fears of a new cash call from investors lie behind the dramatic drop in the share price. Markets will be sharply aware that it’s only as recently as July 2008 that Metro Bank last raised capital through a share placing, that time to the tune of £300m.
This is a big comedown for Metro, whose shares, after soaring in the first two years from its 2016 IPO, have now crashed back below the flotation price. What would I do? Despite the still-rosy forecasts, I’m staying away.
Better news
There was good news from the FTSE 250 too, with a pre-close update from Computacenter (LSE: CCC) pushing its shares up 9% in early trading.
The company, which provides IT infrastructure services to commercial and government clients and has a significant global presence, told us it had “materially out-performed the expectations that we held at the beginning of the year with record revenues and adjusted profitability.”
Growing revenues
Excluding contributions from acquisitions, overall revenue for the year rose by 8%. That came from a 1% rise from Group Services and an 11% gain in Group Technology Sourcing revenue.
Internationally, revenue was up 12%, with Germany up 9%, but France down 3%.
The firm also revealed that its two acquisitions “collectively outperformed our expectations,” contributing more than £220m in the fourth quarter.
The firm is already saying it believes 2019 will see even further progress, so we could be in for another record year this year.
Cheap shares?
Despite Computercenter’s record of steadily rising earnings and progressive dividends, the shares have been in a slump since their peak of July 2018. I think that was down to the excessive exuberance that can cause surges in growth stocks.
But we’re looking at forward P/E multiples dropping to 13% and lower on forecasts. And an 11% share price recovery so far in 2019 makes me think the optimism is returning — it seems my colleague Roland Head got it right.
