AB Dynamics (ABDP) announced a placing to raise £50 million this morning. The money will be used to finance potential acquisitions, add production capacity and meet working capital requirements. This company provides vehicle testing systems and has been rapidly expanding recently. The share price has also been rising like a rocket in the last few weeks and on fundamentals the company is now very highly rated – prospective p/e for the current year is 47. So perhaps the company just saw this as a good opportunity to raise some money.
The new shares are being placed at 2200p though which is a discount of 13% to the share price last Friday. However although this is being done via a placing to institutional investors there is also an “open offer” for those such as private shareholders who cannot participate in the placing. This is the way to do such things and as a holder of the shares I will probably take up the open offer just so as to avoid dilution, although I don’t consider the price as particularly attractive. The share price dipped first thing this morning on the news but has subsequently recovered most of that fall.
Metro Bank (MTRO) has been in trouble since the start of the year when it disclosed it had wrongly risk-weighted some of its loans which meant its capital ratio was wrong. Metro is one of the so-called “challenger banks” that aim to tackle the dominance of the big high-street banks in the UK. The company did a placing to raise another £350 million last week to shore up its balance sheet.
But depositors have been spooked by the news and apparently there were queues of customers withdrawing money from branches in West London recently. Is this another run on a bank, as happened at Northern Rock? Where a falling share price and collapsing confidence in the bank caused depositors to panic? The FT ran an editorial saying it was not similar but it looks very much so to me. Although the Financial Services Compensation Scheme (FSCS) now protects deposits up to £85,000 that will not help many retail customers and the delays in obtaining compensation will encourage depositors to move all or part of their funds elsewhere and promptly. Corporate clients have no such protection anyway. When confidence in a bank is lost, even if it is technically solvent, depositors don’t hang around.
Here’s a good quote from eminent Victorian author Walter Bagehot: “Every banker knows that if he has to prove he is worthy of credit…in fact his credit has gone” (in another letter in the FT today).
From my experience of trying to open an account with Metro Bank recently, I have doubts about the quality of this business anyway. I gave up in the end. Needless to say I don’t hold shares in Metro. But all banks are becoming exceedingly difficult to deal with. My long-standing (over 50 years) bank recently made me visit a branch to prove who I was. There was a letter complaining about the service from banks in the FT on the 15th May. It suggested that “something has gone badly wrong” with frontline bank service. I had similar problems with a business account at HSBC who proved impossible to talk to other than by visiting one of their branches – and even then they were unable to resolve difficulties. It is extremely annoying that banks are becoming paranoid about KYC and security checks so that they won’t even talk to you on the telephone about simple queries.
If any readers can recommend a bank who acts more reasonably and sensibly, let me know.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
An excellent write up on all 3 companies. Thank you.
I must start visiting a few AGMs. What proof of ownership is normally required to get in? I have holdings in nominee accounts.
I also agree that Metro have a poor business. The branches and opening hours are supposed to be a selling point but I recently visited a branch & had poor & slow service. Only 2 out of 8 staff in the front section were serving staff. I had to queue and when they served me, the IT system was slow. Poor management of operations.
Compare with Starling Bank, which I opened in 5 minutes on my phone. This offers FREE overseas cash withdrawals. Their IT is impressive. I withdrew some USD in Cambodia and after hitting enter on the ATM, my phone buzzed almost instantly with full details of the transaction before the ATM responded.
Great idea to get along to more AGMs! It’s sometimes amazing what you learn. Assuming your shares are held in a nominee account, it’s best to get a letter of representation from your broker to ensure that you are admitted and can speak (though most firms don’t insist on it). See this page and the pages linked from it for a lot more information about attending AGMs and your rights: https://www.sharesoc.org/investor-academy/advanced-topics/general-meetings/