Metro Bank Holdings PLC (LSE:MTRO) reportedly receiving a private equity bid approach has led to analysts at Keefe, Bruyette and Woods upgrading its recommendation and target price.
The high street lender has been approached about a potential takeover by private equity group Pollen Street, which is also a major shareholder of unlisted lender Shawbrook, Sky News reported over the weekend.
While no price is mentioned and both parties have declined to comment, the KBW analysts said they "do see commercial logic in such a transaction".
Shawbrook has been delivering commercial loan growth in the mid-teens but has "relatively expensive funding", while Metro Bank has "ambitious plans to grow commercial lending that have yet to gather momentum, but has cheap current account funding".
Shawbrook's deposit costs are around 5.6% and MTRO's are only 1.95%, though not directly comparable, it was noted.
"The value for Shawbrook in maintaining asset growth momentum at the same time as reducing deposit costs is potentially significant."
The "only challenges" to finding a deal, KBW said, is whether MTRO's management and shareholders are prepared to retire at this early stage in their strategy and/or Pollen being able to agree a price with the Gilinski family, who own a near-53% stake.
With news of the approach sending the shares soaring almost 16% to 129.8p, the Gilinski family face around a 330% gain, having bought at 30p a share in October 2023.
With Metrobank shares trading at 7.4 times consensus 2026 earnings, KBW noted they are "not particularly cheap in a sector context, but far from expensive in absolute terms."
Additionally, potential funding synergies valued at approximately 70p per share have prompted KBW to raise its target price from 95p to 150p.
The brokerage has also upgraded its recommendation from 'underperform' to 'market perform'.