Metro Bank Shares (LON:MTRO) Move Higher on Upgrade, Analyst See’s Healthy Upside

Metro Bank shares (LON:MTRO) are moving higher today, up 2.3% as attention following an upgrade by RBC Capital Markets, suggesting the stock could climb more than 25% from current levels boosts sentiment. 

RBC Capital Markets elevated Metro Bank's rating to “Outperform” from “Sector Perform,” maintaining a price target of 155p. This target represents a significant potential gain for investors, underpinning the firm's belief in Metro Bank's ability to deliver a “progressive and attractive” return on tangible equity (ROTE).

The upgrade is predicated on projections showing a ROTE of approximately 16.1% in 2027 and 18.5% in 2028, exceeding the peer average of 14%. Markets are also factoring in anticipated dividend payments commencing from fiscal year 2027.

A crucial factor bolstering RBC's optimistic outlook is the Bank of England's revised Minimum Requirement for Own Funds and Eligible Liabilities (MREL) threshold.

The increase to £25-40 billion, from the previous £15-25 billion, has significant implications for Metro Bank. With total assets of £16.4 billion, Metro Bank will no longer be required to hold MREL debt from January 2026.

This regulatory shift is expected to reduce annual costs by approximately £60 million, a benefit that RBC believes has not been fully priced into the market, potentially driving value from 2028 onward.

Metro Bank's strategic growth initiatives further contribute to the positive sentiment. The bank has outlined plans for lending growth of 8-11% annually through 2028, supported by higher levels of organic capital generation.

Additionally, Metro Bank is accelerating its branch expansion plans, aiming to add three to five new branches per year over the next seven years, targeting approximately 120 locations from the current 76. This expansion is viewed by RBC as a strong indicator of management's confidence in its medium-term strategy.

Despite the positive outlook, RBC acknowledges potential risks that could impact Metro Bank's performance. These include capital strain if lending growth and balance sheet rotation are not managed effectively, liquidity pressures arising from deposit withdrawals, competition in UK specialty lending, and potential deterioration in asset quality. 

The market's reaction to the upgrade reflects growing confidence in Metro Bank's ability to execute its strategic plans and capitalize on favorable regulatory changes. While challenges remain, the bank's proactive measures and optimistic projections suggest a promising trajectory in the coming years, potentially justifying the “Outperform” rating and the 155p price target.