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, Metros 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 firmwith an outsized market cap of 1.6bn. At an inflated valuation and with deposits still well outstripping loans, Ill be watching Metro Bank closely but wont be taking the plunge until further results are posted.
Growth star or not?
Spread betting and contract for difference trading firm CMC Markets (LSE: CMCX) shares are up 7% since their February IPO. The companys 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 thatsaw 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.
Chocolate frenzy
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 markets positive reaction to the company isnt very surprising given its already comfortably profitable and is hoping its second go at international expansion works better than lasttime. Over the past half year, the chocolatier brought in 11m of EBITDA on 55.7m in revenue, which isnt bad for a retailer.
While the founders allocating mostof the 55m raised to themselves isnt great, theyll still own more than two-thirdsof 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.
