PREMIUM: Metro Bank’s continued mushrooming – a Capitec moment awaits

LONDON — Hopefully you've had the chance to hear (or read) last week's interview with Metro Bank founder Vernon Hill. It was inspiring on many levels, but also a reminder of how Americans have refined business to a science – a contrast to a "strategy of hope" that seems to dominate elsewhere..Vernon created a template for a super successful banking business and is now repeating it in the UK. Now 72, he first applied it in his homeland with Commerce Bank. Hill started that company as a 26 year old with a single branch, selling the 500-branch giant 36 years later for $8.5bn..___STEADY_PAYWALL___.Will he repeat the trick in Britain?.The billionaire entrepreneur is very confident. Compared with the highly competitive US banks he knocked out the park on his first swing, Hill reckons the UK's five-bank-cartel is easy meat..And after living in England for the past 18 months and having to deal with the incumbents it's hard to disagree. The Big Five are a sluggish and disinterested lot who reckon you should feel privileged that they allow you to open an account. Hill's approach is to work so hard on his customers that they become fans..Metro Bank's financials for the quarter to end September, just released, reinforce that this approach is working. Seven years after it became the first new UK retail bank licensed in 140 years, Hill's creation is now solidly profitable and hitting its straps on all the important levels..The American who claims to be revolutionising British banking focuses on growing deposits. Banks, Hill points out, are the only businesses licensed to accept in deposits – it is their sole area of competitive advantage because everything else they do is available elsewhere..In the September quarter, Metro Bank's deposits grew by almost £1bn to £10.8bn; a year-on-year increase of 47%. Lending is also in hyper-growth territory, with loans granted up 66% year on year..And the crocodile's jaws are solid – the cost of deposits fell from 53 to 50 basis points offsetting a fall in lending rates to leave net interest margin only fractionally lower (1.94% vs 1.95%). With volumes surging, virtually unchanged margins translated into a surge in profits – up 77% to £7.2m (2Q: £4m)..This is the fifth successive quarter of profits for the young bank. And it was also a record quarter of customer growth with 79,000 new fans raising the total customer base to 1.124m..London's staid investment community is treating Metro Bank very much like its South African equivalents did to that country's own hyper-growth bank, Capitec. Strangely, the numerical share prices at the same stage are similar..Seven years after its 2001 founding, Capitec shares were easy to buy at R30 each (you can get Metro's today at £35). Eventually the penny dropped with SA investors and ten years later you'll need to fork out R900 for the same asset..So could the same thing happen to Metro Bank which, like Capitec, refers to its outlets as stores (not branches) and trains its staff to be retailers (not bankers)?.History is certainly on Hill's side. And with Metro Bank having just opened its 50th branch with another 5 set to join them this year plus a further 12 promised in 2018, its mushrooming is continuing..Metro Bank has been one of the "sleepers" in our Biznews Global Share portfolio. Like Capitec before it, the stock is sure to wake up one day. It's one of those "buy-when-you-can-afford-and-hold" propositions. The recent financial results reinforce that assertion.

PREMIUM: Metro Bank’s continued mushrooming – a Capitec moment awaits

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