Citigroup provided a lift to Metro Bank PLC (LON:MTRO) shares on Monday, upping its rating for the Challenger bank to stock to 'buy' from 'neutral' as it thinks the risk/reward for the stock now looks more balanced.
However, the US bank cut its price target on the FTSE 250-listed stock to 2,590p from 3,040p to reflect a high sensitivity of valuation and lower assumed terminal growth.
In late afternoon trading, Metro Bank shares were trading at 2,194p each, up 5.7% on Friday’s closing price.
READ: Metro Bank shares dive on margin pressures
In a note to clients, Citigroup’s analysts pointed out that with the shares underperforming the Stoxx 600 banks index by more than 25% since early March, they think the price now overly discounts negatives.
They noted that the bank’s growth delivery remains "excellent" and should remain strong as Metro enters new markets.
The analysts also pointed out that the challenger bank should also be a big beneficiary from the adoption of IRB, given a strong bias to mortgages.
They also highlighted the potentially successful outcome on the Williams & Glyn switching scheme and innovation fund bid.
On the downside, however, the analysts said, Metro Bank’s lower valuation may not be enough in a market where most banks look cheap.
They also pointed to weak margin trends due to competition and said Metro Bank's third-quarter results last week did little to indicate that 2020/23 targets are achievable.