Winners and losers: Metro Bank slumps, Photo-Me bounces back

Both these stocks have struggled recently, but are experiencing mixed fortunes Wednesday. Graeme Evans explains what's moving the share price so dramatically.

Metro Bank highlighted a "new phenomenon" in markets today after its shares were again punished despite the company appearing to be firing on all cylinders.

Investec Securities banking analyst Ian Gordon said Metro was the victim and primary example of growth falling out of fashion, with significant de-ratings for those stocks valued on the basis of strong future performance.

The trigger for today's initial 9% sell-off for Metro shares was the company's trading update guidance that recent competitive trends in the mortgage market had continued to squeeze its net interest margin. 

Otherwise, Gordon said the bank had come to deliver "pretty much what we have come to expect from Metro", with accelerating loan and deposit growth.

He said the company's outlook remained robust, adding:

"Metro really seems to be the stock that investors love to hate, yet the facts continue to sit uncomfortably with the bears' narrative."

Metro's shares have now tumbled by almost a third in the past year, despite continued double digit growth in deposits and four quarters in a row of net lending above £1 billion.

Profits in today's third quarter results trebled to £39.2 million, while the business added over 300,000 new customer accounts. From its first store in July 2010, Metro now has a network of 60 and over 1.5 million customer accounts.

Investec's Gordon reiterated his 'buy' recommendation but his previous target price of 3,780p is now under review after third quarter profits came in below his hopes. 

Source: TradingView (*)      Past performance is not a guide to future performance

Metro investors might take some comfort from today's update from Photo-Me International, whose shares were punished earlier this year despite strong trading across the bulk of its business.

In Photo-Me's case, the photo booth and laundry company was priced lower due to problems linked to the Japanese government's My Number ID card programme. 

This led to the need for a restructuring of its Japanese subsidiary, meaning profits for the year to April 2019 would be similar to this year's performance.

But the rest of the photo ID business has performed well, with the roll-out of the group's encrypted passport photo ID upload technology on course to start in December. So far, 2,700 photobooths have been upgraded to allow direct and secure transmission of ID photos and data to the UK Passport Office. 

Significantly, however, the benefits of the Japanese restructuring have been realised earlier than expected and the subsidiary will return to growth in the 2019 financial year.

This helped shares jump more than 15% to 115p, although the stock is still short of the 150p mark seen prior to May's profits warning.

Source: TradingView (*)      Past performance is not a guide to future performance

Photo-Me remains highly cash generative and offers a dividend yield of 8.5%, even with the pay-out due to be held steady at 8.4p in 2019.

Analysts at Progressive Equity Research are forecasting revenues growth of 4.5% for both the 2019 and 2020 financial years.

They added:

"This growth reflects the continued strong expansion of the laundry business, the ongoing roll-out of photo ID encryption technologies in new and existing markets and a successful completion of restructuring in Japan."

*Horizontal lines on charts represent previous technical support and resistance.