Metro Bank - A High-Quality Compounder in the Making !! - (Investment Thesis - Part 3/3)

Metro Bank - A High-Quality Compounder in the Making !! - (Investment Thesis - Part 1/3)

Small & Mid Cap focused Value Investor

Gokul Raj. P

Equity Bottom-Up

3.) Metro Bank – Operational Performance: Metro Bank’s healthy operational performance over the last few years vindicates the success of its model, culture and execution capabilities.<ul><li>Attracting low-cost sticky deposit base – </li></ul><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/029/724/original/Screen%20Shot%202017-07-13%20at%204.22.45%20pm.png?1499960992" class="editor-image img-responsive" data-smartkarma-image-id="29724"></figure>Metro has not only scaled up its deposits at an aggressive pace, but has also done it with continous reduction in cost of funds as can be seen from the above image. The company has been able to crack into the most difficult PCA and BCA markets (50% contributions each) successfully without any monetary incentives for switching accounts. Metro currently opens over 1000 new customer accounts/ day and this trend is accelerating.The bank currently has over 29% of its deposits from highly sticky zero-cost deposit float. This percentage compares favourably even with legacy peers such as RBS (24%), TSB (21%) and Lloyds (10%). Similarly Metro’s cost of deposits of &lt;0.8% is an outlier amongst other challenger banks such as Shawbrook (2.1%), OSB (1.9%), Aldermore (1.7%) and Virgin Money (1.4%).<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/029/725/original/Screen%20Shot%202017-07-13%20at%204.23.13%20pm.png?1499961018" class="editor-image img-responsive" data-smartkarma-image-id="29725"></figure><ul><li>Creating Fans, Not Customers –</li></ul>Metro Bank has been able to add 1 million new sticky deposit customers. The company has been able to achieve this strong growth on the back of strong word of mouth publicity from its satisfied customers. The company has a marketing budget of less than 60K pounds, but yet has achieved a brand recognition score of over 80% in the greater London area (source – 2017 Annual Report). Similarly, it has the best NPS scores amongst its peers with strong creation of FANS. The existing customers become FANS overtime as they enjoy its superior customer service and that will accelerate the network effect going forward.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/029/726/original/Screen%20Shot%202017-07-13%20at%204.26.36%20pm.png?1499961092" class="editor-image img-responsive" data-smartkarma-image-id="29726"></figure>Source: Jefferies Research

3.) Metro Bank – Operational Performance: Metro Bank’s healthy operational performance over the last few years vindicates the success of its model, culture and execution capabilities.Attracting low-cost sticky deposit base – Metro has not only scaled up its deposits at an aggressive pace, but has also done it with continous reduction in cost of funds as can be seen from the above image. The company has been able to crack into the most difficult PCA and BCA markets (50% contributions each) successfully without any monetary incentives for switching accounts. Metro currently opens over 1000 new customer accounts/ day and this trend is accelerating.The bank currently has over 29% of its deposits from highly sticky zero-cost deposit float. This percentage compares favourably even with legacy peers such as RBS (24%), TSB (21%) and Lloyds (10%). Similarly Metro’s cost of deposits of &lt;0.8% is an outlier amongst other challenger banks such as Shawbrook (2.1%), OSB (1.9%), Aldermore (1.7%) and Virgin Money (1.4%).Creating Fans, Not Customers –Metro Bank has been able to add 1 million new sticky deposit customers. The company has been able to achieve this strong growth on the back of strong word of mouth publicity from its satisfied customers. The company has a marketing budget of less than 60K pounds, but yet has achieved a brand recognition score of over 80% in the greater London area (source – 2017 Annual Report). Similarly, it has the best NPS scores amongst its peers with strong creation of FANS. The existing customers become FANS overtime as they enjoy its superior customer service and that will accelerate the network effect going forward.Source: Jefferies Research

Metro Bank - A High-Quality Compounder in the Making !! - (Investment Thesis - Part 2/3)

Metro Bancorp

Metro Bank - A High-Quality Compounder in the Making !! - (Investment Thesis - Part 2/3)