Market Prognosis

A concise summary of the major macro events of the past 24 hours, and selected UK company-specific news.

October 5, 2023

Why be a bank?

Macro & Overnight

Oil prices stabilised after one of the steepest ever one-day falls yesterday.

Interest rate fears faded slightly, but all eyes remain on US jobs data tomorrow.

UK Company News

Metro Bank shares fell sharply today on media reports that it needs to raise a further £600m of capital to satisfy the regulator of its financial position.

Investors are puking at the sight of bonds, banks and leverage, and Metro has exposure to all of these things. While we have yet to hear from the Metro management on this subject, this highlights the problem of investing banks, which are inherently financially unstable and exist ultimately at the discretion of their regulator. Metro Bank is familiar with this scenario and will survive this latest sting in the tail, but where this takes the equity value is unknowable.     

Volution, the designer and manufacturer of energy-efficient indoor air quality solutions (aka extractor fans), reported FY revenue up +6.6% with improved operating margins and operating cash flow +50% (cash conversion >100%). Regulatory changes continue to drive demand, and it is confident of making further progress in the year ahead.

Volution is a well-run, tightly focused business with a growth strategy serving cyclical sectors. Its ability to focus on regulatory-driven products offers superior margins and strong cash flow characteristics. Shares have been weak given its exposure to the housing new build and RMI markets. However, this is one to watch closely as and when things recover.   

Ramsdens updated that its pawnbroking loan book increased by approximately 20% to a record £10.3m. Precious metal buying revenue increased by 50% as consumer demand for realising value in unwanted or damaged jewellery increased with the higher Sterling gold price. It opened eight new stores and acquired a pawnbroker in Bexleyheath.  It remains confident that it is in a good position to continue its positive momentum into the new financial year. 

With regulatory crackdowns on subprime lending, such as payday loans and doorstep lending, pawnbroking is the last remaining place where poorer members of society can obtain credit. Ramsdens, the smaller of the two listed pawnbroking businesses, is growing strongly. However, along with most other smaller financials, its shares have been weak over the last few weeks despite its improved prospects.  

Prognosticator     

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Any prices quoted in our research are as at the previous day’s close.