Metro Bank’s social media problem and Centrica is still struggling ahead of new strategy launch

Monday, May 13, 2019 - 10:11

“The FTSE 100 was flat as the new trading week kicked off. Investors had a testing time last week and are likely to be cautious until there is more clarity on the US/China trade talks," says Russ Mould, Investment Director at AJ Bell.

“On Monday, the utility sector was among the risers on the FTSE including gains from Centrica and National Grid. Oil producer Royal Dutch Shell also nudged ahead.

“In contrast, Vodafone was the biggest faller on chatter that it would cut its dividend given hefty investment requirements for 5G,”

Metro Bank

Metro Bank’s shares continue to fall as investors worry about its financial health. Having hundreds of customers queue up to withdraw money certainly hasn’t helped matters, particularly as the business is in the process of trying to raise £350 million to alleviate concerns about its balance sheet.

“Chatter on social media that customers’ money wasn’t safe spiralled out of control at the weekend, with memories of the run on Northern Rock in 2007 still in many people’s minds.

“While Metro Bank has done its best to reassure customers that their money is safe, pictures of one of its branches packed with individuals wanting to cash out is damaging to its reputation and could hurt new customer growth, at least in the short term.

“Assuming it raises £350 million later this week, Metro Bank will then have to prove to the market and its customers that the business is robust and capable of growing without needing regular capital injections and also without a repeat of the recent accounting error.”

Centrica

“Centrica is yet another company alongside the likes of BT and Sainsbury’s where a British giant has lost its way and needs to find a new direction in which to revive earnings and the future of the business.

“British Gas used to be a trusted brand – now its reputation has been tarnished by talk of sub-standard customer service and expensive bills.

“With so much choice in the energy market, Centrica cannot afford to fail on service and cost which means it is going to have to reinvent itself.

“Unfortunately its latest update shows just how difficult it is to run a utility business.

“Many people may assume these types of companies are simple to operate – they merely provide energy to a large customers and collect payments on a monthly or annual basis.

“However, Centrica and many of its peers have shown the troubles that come with operating in a highly-regulated industry and being exposed to unpredictable forces of nature.

“Centrica’s woes have recently included large numbers of customers jumping ship for alternative energy providers. It has now lost another 20,000 customers on a net basis in the first four months 2019.

“However the scale of the UK losses is particularly worrying if you drill into the numbers. The overall net reduction is relatively minor thanks to growth in North America, Ireland and its Connected Home businesses. However, its UK home energy supply business loss a further 234,000 customers in the period.

“It has also incurred problems with unfavourable weather, the impact of the energy price gas and operational disruptions.

“The company is no doubt working hard to steady its ship and the market certainly likes the sound of a rough plan to cut costs, improve customer service and maintain financial discipline. We should get the full plan in July.”

These articles are for information purposes only and are not a personal recommendation or advice.


The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.