Metro Bank PLC (LON:MTRO) shares received a boost today after Goldman Sachs upgraded its rating on the stock to ‘neutral’ from ‘sell’ and raised the target price to 3,400p from 2,600p.
Goldman said Metro’s “significant volume” of low-cost deposits is a “key competitive advantage” in comparison to other challenger banks.
READ: Australian broker Macquarie no fan of Metro Bank, starts coverage with an ‘underperform’ rating
Metro saw deposits rise 49% and the average cost of deposits fall by 27 basis points in the first half of 2017 from the same time a year ago.
Goldman added that it believes Metro should be able to deliver on its growth plan and sees returns rising from about 3% this year to about 18% in 2021, buoyed by a stronger balance sheet.
Since being added to Goldman’s 'sell' list in September 2016, Metro’s shares have jumped 24%. In comparison, Goldman’s European banks coverage has increased 37% and the FTSE World Europe is up 18%.
READ: Metro Bank founder chips in as challenger raises £280mln
Goldman said key upside risks to its view on Metro include deposit and loan growth ahead of estimates, lower costs and a bigger-than-expected reduction in risk-weighted assets as a result of the company’s plans to switch to the IRB approach for calculating capital requirements.
Downside risks include lower asset spreads, higher operating costs, adverse macroeconomic trends and a slowdown in deposit and loan growth, Goldman said.
Shares rose 1.64% to 3,47p in afternoon trading.