Directors’ Deals: Metro Bank chiefs buy into capital raise 

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Metro Bank has not been far from the headlines this autumn after the struggling institution issued new debt, refinanced existing borrowings and completed a £150mn equity raise that has seen Colombian billionaire Jaime Gilinski Bacal take effective control of the bank — raising his stake from 9.2 per cent to a dominant 53 per cent.

Shareholders approved the cash call last week, and chief executive David Frumkin and chief financial officer James Hopkinson backed the deeply discounted fundraising by buying substantial quantities of shares. To fulfil the placing, Metro Bank issued 500mn new shares at a discounted price of 30p apiece. 

Frumkin spent a hefty £1.75mn on 5,833,333 shares while Hopkinson spent a more modest £60,000 on 200,000 new shares. There is no doubt that Metro Bank needed to shore up its balance sheet, and even after the shares fell again in response to the price of the placing, management has still locked in a near-30 per cent discount to last Friday’s closing price. 

Metro Bank’s overall capital position will be further helped via the issue of £175mn of Minimum Requirement for own funds and Eligible Liabilities (MREL) notes. Metro Bank also recently said that Barclays was among the potential buyers of a suite of £3bn worth of mortgages. 

Metro Bank’s troubles underline the difficulties that some so-called “challenger banks” have had when it comes to eroding the entrenched position of the big five — NatWest, Barclays, HSBC, Lloyds and Virgin Money. 

However, while the going may be tough, the FCA recently highlighted how low-cost digital banks like Starling and Monzo have started to gain market share. The regulator says that the big five have 64 per cent of the banking market, down from 68 per cent in the four years to 2021.

Bytes directors are buyers and sellers

Microsoft’s cloud computing arm Azure has managed to put clear blue water between itself and many of its peers by serving companies’ growing desire to train and run artificial intelligence-powered software.

Indeed, many experts forecast that the development of AI is accelerating the move from physical servers to cloud computing. This is good news for reseller Bytes Technology, which is in the privileged position of having Microsoft Azure expert status — meaning its fate is closely tied to the success of the US tech giant’s cloud service. 

This relationship has helped propel Bytes’ growth in the last year. Its software services gross invoiced income grew 39 per cent year-on-year in the six months to August. Software now makes up 62 per cent of the business in terms of revenue. Across the whole group, gross profit increased 15 per cent to £75.3mn. This did not all filter through to the bottom line because salary increases were needed in a tight labour market, but operating profit was still up a healthy 12 per cent. 

Software invoice growth should continue. Microsoft is now starting to roll out its 365 Copilot product which will accelerate the need to transition to the cloud. This is an AI-enhanced version of Office 365, integrating the technology powering ChatGPT with Word and Excel. The company has reported good levels of initial demand, which will mean more need for Bytes’ IT services. 

The market has noticed Bytes’ growth potential. Broker Numis expects earnings per share to rise to 20.7p in 2025. This would leave Bytes trading on an expensive-looking 2025 price/earnings ratio of 22, and its thin profit margin leaves it vulnerable in a market downturn.

The management team’s recent actions paint a mixed picture. Managing director Jack Watson sold £1.1mn of shares last week. Similarly, non-executive director Mike Phillips sold £294,000 worth. 

However, the day after Watson and Phillips’ sales, chief executive Neil Murphy showed confidence in the business by purchasing £299,000 of shares, then chair Patrick De Smedt bought another £55,000 worth. They will be hoping that AI is as transformative as Microsoft is leading us to believe.