A Review Of Three LSE-Listed Companies - Metro Bank PLC, IP Group PLC and discoverIE Group PLC

  • Nov 04, 2019 GMT
  • Team Kalkine
A Review Of Three LSE-Listed Companies - Metro Bank PLC, IP Group PLC and discoverIE Group PLC
Metro Bank PLC

Metro Bank PLC (MTRO) is a London-based financial institution with principal activities, including the provision of banking and related services. It offers personal and business banking services to retail and small and medium-size commercial customers, and a range of business banking products and services, from bank and deposit accounts to cash management and payment services. It also provides solutions for business borrowing - including commercial loans, credit cards, asset finance, working capital and portfolio buy to let - and it’s business deposit accounts include Instant Access Deposit Accounts, Client Monies Deposit Accounts and Fixed Term Deposit Accounts.

Recent Development

On 23 October 2019 the company announced that Sir Michael Snyder was appointed as the interim Chairman of the group until a permanent successor is appointed as Vernon Hill had decided to step down from his role as Chairman with immediate effect. Vernon Hill set up the group ten years ago, and to recognise his contribution to Metro Bank, the honorary position of Emeritus Chairman was offered to him.

Trading Update

 (Source: Company Filings)

Along with a strong customer account growth of 106,000 in Q3 2019 (Q2 2019: 93,000) bringing the total to 1.9 million, the decision to elevate the price of fixed-term retail deposits during the quarter helped the company to record deposit growth of £528 million in Q3 2019 to £14.2 billion. Even as the loan to deposit ratio declined to 105% at Q3 2019 (Q2 2019: 109%), the company continued to manage the loan to deposit ratio in a controlled way towards over 100%, and total net loans were broadly flat quarter-on-quarter to £14,891 million (Q2 2019: £14,989 million), reflecting proactive management of the capital and liquidity positions. Net interest income in the third quarter was down 7% to £76.6 million (Q2 2019: £82.4 million), and due to the £521 million loan portfolio disposal, the sale of £1.5 billion non-LCR interest-bearing investment securities and an increase in fixed-term deposit costs, the company recorded an 11 basis points decline in the net interest margin to 1.50% in the latest quarter (Q2 2019: 1.61%). The group reported a slowing pace of the cost growth reflecting the cost transformation programme, as it recorded a reduction in costs quarter-on-quarter, declining from £100.3 million in the last quarter to £99.7 million in Q3 2019, while underlying loss before tax was £2.2 million in Q3 2019 (Q2 2019: £6.7 million profit) and statutory loss before tax was £6.7 million in Q3 2019 (Q2 2019: loss of £0.9 million).

Share Price Commentary

On 4 November 2019, at the time of writing (before the market closed, at 2:05 GMT), MTRO shares were trading at GBX 231.2, down by 0.32 per cent against the previous day closing price. Stock’s 52 weeks High and Low is GBX 2,366.00/GBX 155.20. The outstanding market capitalisation was around £400.02 million.

Outlook

The company expects the cost growth to moderate with low single-digit growth in the second half of FY19 as compared with the first half, while margin trends experienced in Q3 2019 are expected to continue into Q4 2019. It expects deposit growth to moderate as it seeks the right balance between growth, cost of deposits and capital efficiency, and introduction of new services and products will enable the bank to expand organically and enhance its client base. Through initial delivery of cost efficiencies and continued growth in capital-light fee income, it will continue to build a robust point of the model to deliver on the strategic initiatives, despite challenges in the first half of 2019, and in the UK, the increasing cards and payments channel may deliver growth prospects for the bank. The company would aim to optimise capital, target further income diversification and continue to progress with its cost efficiency programme as it further evaluates future growth plans to maximise returns, including cost initiatives, future expansion and optimising capital efficiency, which will be communicated in conjunction with the full-year results.

IP Group PLC

IP Group PLC (IPO) is a London-headquartered intellectual property commercialisation company that seeks to provide support to its partner universities’ intellectual property commercialisation activities, with the aim of taking an equity position in them by granting seed capital to convert business ideas from universities into companies. The company achieves this by aiding in creating, building and supporting exceptional intellectual property-based companies, and has a diverse portfolio of holdings across life sciences and technology in early-stage to mature businesses

Financial Highlights (H1 2019, in £m)

 (Source: Company Filings)

The company reported a negative return on Hard Net Asset Value (on the net assets excluding goodwill and intangible assets) of £46.9 million (HY 2018: a loss of £13.1 million) as it recorded a loss for the period of £49.5 million (HY 2018: £21.6 million loss; FY 2018: £293.8 million loss). Other central administrative expenses totalled £15.5 million (HY 2018: £14.3 million; FY 2018: £34.5 million) and other income for the period totalled £3.8 million (HY 2018: £4.6 million; FY 2018: £9.9 million), resulting in net overheads of £11.7 million against £9.7 million in the prior year. That included the share-based payments charge of £0.9 million (HY 2018: £1.2 million; FY 2018: £1.9 million) and costs of £1.6 million (HY 2018: £1.4 million; FY 2018: £3.3 million) in relation to deferred and contingent consideration. Net assets were reported at £1,172.4 million (FY 2018: £1,218.2 million; HY 2018: £1,489.8 million), which translated into Hard Net Asset Value of £1,171.8 million (FY 2018: £1,217.5 million; HY 2018: £1,283.0 million) or 110.6p per share (FY 2018: 115.0p; HY 2018: 121.1p). Net portfolio gains, which consist primarily of realised and unrealised fair value gains and losses from equity and debt holdings in spin-out businesses, reduced by £36.7 million, approximately 3% (HY 2018: gain of £0.7 million; FY 2018: loss of £48.4 million), while fair value of portfolio remained broadly stable at £1,127.0 million (FY 2018: £1,128.2 million; HY 2018: £1,148.2 million). Predominantly due to investing activities of £37.4 million and £15.4 million of cash outflow from operations, cash totalled £161.1 million at 30 June 2019, a decrease of £57.9 million from a total of £219.0 million at 31 December 2018, and total borrowings totalled £90.1 million at the period end (HY 2018: £102.5 million, FY 2018: £97.8 million).

Share Price Commentary

On 4 November 2019, at the time of writing (at 2:07 am GMT, before the market closed), IPO shares were trading at GBX 58.8, down by 2.32 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 125.79/GBX 53.50. The outstanding market capitalisation was around £637.61 million.

Outlook

The business of the group is approaching self-sustainability as the portfolio matures and during the period, the group made good operational and strategic progress. The company is able to fund its current priorities from existing capital resources as it continues to focus on its portfolio, tight cost control, and a strong cash position. However, access to capital for both IP Group and its portfolio companies and investor confidence can be impacted by severe macroeconomic environment caused by a short-term UK recession, the risk of which is exacerbated by a chaotic Brexit. Moreover, portfolio companies have significant exposure to the UK economy, which can further augment the threat from a considerable fall in GDP and the risk of a short-term recession. Moreover, it may be difficult for the group and its early-stage companies to attract capital, and the returns and cash proceeds from the early-stage companies can be very uncertain. As a result of its recent international expansion, the company may be negatively impacted operationally, but also opens new opportunities to the group.

discoverIE Group PLC

discoverIE Group PLC (DSCV) is a Guildford, the United Kingdom-headquartered international group that is engaged in designing, manufacturing and supplying highly differentiated, innovative components for electronics applications, with a focus on markets with sustained growth prospects and increasing electronic content, namely renewable energy, transportation, medical and industrial & connectivity. The group is able to generate a high level of recurring revenue and long-term customer relationships as it design components to meet customer requirements, which are then manufactured and supplied, usually on a repeating revenue basis, for their ongoing production needs, thereby providing application-specific components to original equipment manufacturers.

Recent Development

The company on 17 October 2019 it announced the acquisition of Xi-Tech Limited and its wholly-owned subsidiary Sens-Tech Limited – which is the UK-based designer, manufacturer and supplier of specialist sensing and data acquisition modules for x-ray and optical detection applications – for an initial cash consideration of £58.0m with further contingent cash consideration of up to £12.0m. Moreover, to raise gross proceeds of approximately £33m, the company proposed placing of 8,034,840 new ordinary shares of 5 pence each in the company, and the acquisition and the placing together, are expected to be immediately enhancing to underlying EPS.

Financial Highlights (FY 2019, in £m)

(Source: Company Filings)

Orders grew by 8% organically to £454 million and by 14% CER, leading to another record year-end order book at 31 March 2019 of £139 million (up 12% organically year-on-year and 15% CER), while group sales for the year increased by 13% to £438.9 million and by 14% at CER, driven by 10% organic growth in the D&M division and 5% in Custom Supply. Gross profit for the year increased by 14% over last year to £145.0 million (FY 2018: £126.7 million), while reported operating profit for the period was £22.7 million, an increase of £5.4 million (+31%) compared with last year (FY 2017/18: £17.3 million) and underlying operating profit for the year was up £6.1 million (+25%) on last year to £30.6 million. Reported fully diluted earnings per share were 19.4p, an increase of 37% on last year (FY 2018: 14.2p), as reported profit before tax of £19.3 million was 32% higher than last year (FY 2018: £14.6 million). Underlying diluted earnings per share for the year of 27.2p, up 22% on last year, as underlying profit before tax for the year was £27.2 million, an increase of £5.3 million (24%) compared with last year.

Share Price Commentary

On 4 November 2019, at the time of writing (at 2:09 pm GMT, before the market closed), DSCV shares were trading at GBX 486, down by 0.81 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 498.00/GBX 318.50. The outstanding market capitalisation was around £434.66 million, with dividend yield of 1.95%

Outlook

The group believes that the acquisition of Sens-Tech represents a further step in building the D&M division and would help in creating new organic growth opportunities in the target markets, particularly medical, transportation and industrial & connectivity. With 75% of design wins and 66% of total revenue derived from the target markets, the company is focused on four key structurally growing market, which is complemented by a record year-end order book and a high level of design wins.

Share Price Comparison of Metro Bank PLC, IP Group PLC and discoverIE Group PLC

 (Source: Thomson Reuters)

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