Analysts have split opinions towards Metro Bank (MTRO), one of the better known challenger banks popping up on UK high streets.

Newly-published fourth quarter results are better than expected in certain areas; however the performance still isn’t good enough to win everyone over.

Panmure Gordon analyst Shailesh Raikundlia doesn’t rate the company as a good investment, saying to sell the shares. He says growth in deposits and loans is lower than his forecast.

Investment bank Jefferies notes that Metro has just reported its second profitable quarter. It believes investors could make significant profit owning the shares.

Jefferies’ price target for Metro Bank has been lifted from £30 to £45. That implies 27% upside over the next 12 months versus the current £35.41 trading price.

‘Metro Bank is a premium asset and should be valued as such,’ claims Jefferies’ team of analysts.

HOW HAS THE COMPANY PERFORMED RECENTLY?

Customers deposited 9% more money in the fourth quarter of 2016 versus the previous three month period to £7.95bn. Lending increased 13% quarter-on-quarter to £5.86bn. Revenue increased 8% to £57.6m and it reported a fourth quarter pre-tax profit of £1.5m.

Raikundlia at Panmure had forecast £6.1bn of loans in the fourth quarter period. He also expected the bank to attract £8.22bn worth of deposits.

Despite his disappointment at the results, the analyst does give credit to Metro Bank for achieving 2% growth in net interest margin.

‘Metro bank reminds us of the large UK banks where we await the return to high profitability post the financial crisis,’ comments Raikundlia .

‘While we do think that the bank will generate mid-teens return on tangible equity in the future, at price to tangible net asset value of 3.8, we prefer those banks that are already generating c20% returns.’ He has a £27 price target for the shares.

HOW DOES METRO BANK RATE ITS PERFORMANCE?

Craig Donaldson, chief executive at Metro Bank says: ‘It's been another great quarter and I'm delighted with our full-year performance.

'We continue to show significant growth across lending, deposits and customer account numbers with continued integration of technology across all our channels, including stores, creating a compelling service experience for our retail and business customers.

‘The year saw continued major investment in technology, stores and colleague training - c. £100m in total - helping us to achieve a 62% full year increase in revenue and our second successive quarter of profitability. Our absolute focus on creating FANS through our model, culture and fanatical execution goes from strength-to-strength.’

The term ‘FANS’ is an acronym used (somewhat cheesily) by Metro Bank to describe its customers.

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Issue Date: 22 Feb 2017