Over the past 12-months, shares in Metro Bank (LSE: MTRO) have lost around 90% of their value as the company has lurched from disaster to disaster.
And despite the challenger bank’s efforts to stop the investor exodus, the market has continued to punish the business.
However, I believe that this could change in 2020, and today I’m going to explain why.
I will admit that I have not been a fan of Metro Bank for some time. In the beginning, the bank’s premium valuation scared me off, but then when the company’s accounting scandal broke earlier in the year, I started to worry about its solvency and management’s ability to run a business. The failed bond issue in September only reinforced my views.
Metro has been trying to put these issues behind it, with limited success. It eventually got the debt issue off the ground, although it had to offer investors a much higher interest rate, and at the end of October, chairman and founder Vernon Hill left the company with “immediate effect“.
While Hill had already been planning to leave at the end of the year, his sudden decision, announced soon after the publication of Metro’s third-quarter results, spoke volumes.
The group reported a third-quarter statutory loss before tax of £6.7m. A substantial charge for “prudent balance sheet actions” helped push the group into the red.
Michael Snyder has now taken over as the challenger bank’s chairman, and while he will have his work cut out to restore confidence in Metro, his credentials seem to suggest that he is the right man for the job. He has previously worked as the head of mid-market accountants Kingston Smith, and he spent five years as the de facto head of the City of London Corporation.
Snyder’s background and connections could be vital in helping Metro improve its reputation with regulators, which is much needed at the moment. His connections might also help Metro find a buyer.
Only time will tell if its new chairman will be able to steer the group back to growth. Nevertheless, 2020 is set to be a pivotal year for the bank.
If growth does return, and Metro’s reputation in the City improves, then I think there is an excellent chance the stock could double or even triple from today’s levels.
It is currently dealing at a price-to-book value of just 0.2, compared to the sector average around 0.9. Right now, I think this discount is warranted because Metro’s outlook is so uncertain. But if management can put the business back on a stable footing, then I believe the market will reward the bank with a higher multiple.
Having said all of the above, there is still a lot of uncertainty here, and while I do think there’s a chance the Metro Bank share price could double in 2020, I think there’s also a chance it could fall further. So, this stock is not for the faint-hearted.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019