Metro Bank Plc – Offering Multiple Services to Support Customers

Metro Bank Plc (LON: MTRO) is a banking institution, providing banking and related services to retail customers and SMEs. It offers personal and business banking services.

Q1 Trading Update - Increased Deposits with Proactive Management
On 6th May 2020, Metro Bank released an update on trading for the first quarter of the financial year 2020. During the period, the group is focused on supporting its colleagues, customers and communities. In the Q1 of the FY2020, the deposits increased by GBP 77 million to GBP 14,554 million since 31st December 2019. Despite a decline in fixed term deposit rates, the company witnessed a growth in the retail saving accounts. Driven by proactive management of growth in lending, the net loans declined by GBP 169 million to GBP 14,512 million in Q1 FY2020 versus net loans as on 31st December 2019. The loan to deposit ratio declined to 100 per cent as at 31st March 2020. The company has a strong liquidity coverage ratio and stood ahead of 197 per cent reported on 31st December 2019. The bank is looking to access the Bounce Back Loan Scheme and Coronavirus Business Interruption Loan Scheme to support requests for repayment holidays by customers. The company will provide impacts of the outbreak and economic consequences in H1 FY2020 results.

Share Price Performance
 
Daily Chart as of19^th May 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Metro Bank Plc shares were trading at GBX 75.42 at the time of writing before the market close (at 8:15 AM GMT+1), on 19^th May 2020. Stock's 52 weeks High is GBX 893.50 and Low is GBX 66.30.

Growth Catalysts
The bank is reducing costs, increasing fee income, and further strengthening its capital and liquidity position, which would help it to improve its performance.

Conclusion
In the first quarter of the financial year 2020, the group witnessed an increase in the total deposits despite a decline in the deposit rates and net loans have also declined. The bank is awarded as the best bank for overall quality of service for personal current account customers. Net fee and other income in FY2019 were up by 43%, due to decent customer growth and the initiation of fee-earning services. It was awarded second for business current account customers in the latest Service Quality Survey. The company is focusing on its future growth plans to improve its growth, costs, and capital efficiency, which would help the Group for the sustainable growth of its business. It would be an excellent opportunity for investors to invest in generating good returns in the long term.

Based on the above rationale, we have given a “SPECULATIVE BUY” recommendation at the closing price of GBX 74 (as on 18th May 2020).

Ryanair Holdings PLC - Decent Full Year Results Amid Elevated Global Volatility

Ryanair Holdings PLC (LON: RYA) is a Dublin, United Kingdom-headquartered low-cost airline and is the largest budget airline in Europe. The airline has four airlines (Buzz, Lauda, Malta Air & Ryanair DAC) in its portfolio and operates low fare passenger airline services.

On 27^th July 2020, the Company will release its Q1 FY21 earnings.

Financial Highlights - Average Weekly Cash Burn Has Dropped in March

(Source: Final Results, Company Website)

On 18^th May 2020, the Company provided the full-year results for the year ended 31^st March 2020, with a full-year profit of EUR 1,002 million (excluding hedge ineffectiveness), against the last year (2019: EUR 885 million). Led by 4% traffic growth (to 149M) and a 2% increase in average fares, the revenue from scheduled increased by 6% to EUR 5,566.2 million. In Ancillary, the revenues surged by 20% to EUR 2,928.6 million, driven by improved uptake of ancillary products and 4% traffic growth. These both segments revenue reflects an increase of 10% in total revenues at EUR 8,494.8M million. The Company has seen a decent balance sheet and liquidity position, with a current cash balance of EUR 4.1 billion and 330 unencumbered B737s. As a result, average weekly cash burn has dropped from around EUR 200 million in March 2020 to just more than EUR 60 million in May 2020.

Share Price Performance
 
(Source: Refinitiv, Thomson Reuters) - 1-Year Chart as at May-19-20, before the market close
 
On 19^th May 2020, before the market close (at 8:20 AM GMT+1), Ryanair Holdings PLC’s shares were trading at GBX 10.075 and were up by 3.02 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 16.97/GBX 8.05.
 
Valuation Metrics

(Source: LSE)

As on 30^th April 2020, the EV/EBITDA and Price to Book multiples of the RYA were 6.9x and 2.2x, respectively and the same multiples were higher as compared with the Travel & Leisure industry. It is reflecting that the company is trading at a higher multiple as compared to its peers.

Conclusion
Due to Covid-19 crisis, Ryanair cannot provide the financial year 2021 guidance.RYA expects to record a loss of more than EUR 200 million in the first quarter, with a smaller loss expected in the second quarter, driven by pricing from Covid-19 groundings and a substantial decline in traffic. Currently, the Group expects in the financial year 2021 to carry less than 80 million passengers. The company has taken note of weakness in the UK market due to Brexit concerns weighing on consumer confidence and spending, and in Germany where excess capacity is sold at below cost prices. The Company has taken certain liquidity & cash preservation measures to combat novel coronavirus chaos. Environment and sustainability issues such as climate change, etc. could affect the revenue and profitability of the company. Any change in regulations and government policies could affect the overall business of the company. Macroeconomic and geopolitical factors could affect the performance of the company.

Based on the above rationale, we recommend investors to keep a “Watch” on the stock at the current price of GBX 10.06 (as on 19^th May 2020, before the market close as at 8:25 AM GMT+1), with support from few catalysts needs to be evaluated at a later stage.
 
*The “Speculative Buy” recommendation is also valid for the current price as covered in the report (as on 19^th May 2020).

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