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3 reasons why this underdog FTSE stock is on my investing radar

The Motley Fool logo The Motley Fool 7/11/2020 Manika Premsingh
a clock hanging from the ceiling: Screen of various price trends, possibly in FTSE 100 © Provided by The Motley Fool Screen of various price trends, possibly in FTSE 100

Something’s up with financials. Changes at the top are visible for a number of them. Earlier this week, Lloyds Bank’s CEO resigned. Insurance biggie Aviva’s CEO stepped down the same day. Now, another FTSE 100 stock has announced changes. Challenger Metro Bank (LSE: MTRO) has appointed a new chair, veteran banker Robert Sharpe. 

Changes at the top

This is one reason the investor in me is now looking more closely at Metro Bank. It’s part of a bigger leadership change underway. Earlier this year, a new CEO, Daniel Frumkin, took charge. Both personnel decisions are linked to last year’s accounting mess-up. Following this, its founder and then chair, Vernon Hill, had stepped down. Next, the CEO, Craig Donaldson, quit. With both positions now filled, it appears that the company is ready to start a new chapter, putting behind 2019’s turbulence. 

Rising share price for this FTSE stock

The second reason this FTSE stock is on my radar is the investor interest in it. Going by its stock price movements, it’s clear that investors are positive on MTRO. In July so far, its share price is the highest it has been since February. If this trend is maintained, it will be the second straight month of gains for Metro Bank. This is quite the comeback after the share price plunged in May.

Recently, its CEO increased his stockholding by 500,000 shares. I think a share purchase by management can be a vote of confidence in the organisation. This combined with a sustained rise in share price in the recent past, is positive for the bank.

Not half bad trading update

Finally, I think the stock’s recent trading update wasn’t all bad either. While no particular growth was possible in the present circumstances, Metro Bank did report marginal increase in deposits. The loans extended declined, but only marginally. While it didn’t detail its capital adequacy ratios, the update is positive on that front too. This doesn’t change the fact that MTRO may still be in precarious financial health. It made a loss last year and we’ll know the corona-damage to this year only when detailed results are out. Until such time, I’d refrain from guessing too much. 

Metro Bank has other challenges too. Recessions always drags down financials. There’s higher likelihood of more bad loans and slower deposit growth because of muted incomes and low interest rates. These squeeze banks from both sides. In any case, MTRO has big competition to contend with.

I’m not buying MTRO as yet. Not in this uncertain scenario. But, with brand new leadership, investor faith in the stock, and its latest trading update, I’m keeping it on my radar. This FTSE stock may still be down, but it’s not out.

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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. 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.

The post 3 reasons why this underdog FTSE stock is on my investing radar appeared first on The Motley Fool UK.


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