Quick Value 11.16.20 (CFG)
Citizens Financial Group (CFG)
Market Performance
Another week of solid gains with small and microcap stocks leading the way…
Market Stats
In case you hadn’t noticed, yields and the yield curve are starting to move higher… In fact, the yield curve is at its highest point since 2017-2018…
Could that mean good things to come for banks and financials? Or inflation? Or growth?
Regional banks have quickly moved off the 10x earnings level back to 15x…
Speaking of regional banks…
Quick Value
Citizens Financial Group (CFG)
Citizens is a regional bank that spun off from RBS in 2014. Shares started out 2014 in the $21-23 range and today sit at about $32.
With 427m shares outstanding it’s a $13.5bn market cap. With $180bn in total assets, it ranks as a top 20 bank in the US.
Book value is $48 per share for a 0.66x multiple — which has historically bounced around the 0.8x level. This isn’t the sole reason to own this bank…
Sure, it’s cheap on the $48 in book value and the $2.78 estimated 2021 earnings (11.5x). But there are plenty of other banks out there that fit that bill. What makes it interesting to investigate further is the fact that it’s the cheapest of the regional banks with $10bn+ market cap:
Why is that?
Equity is still significant at $22bn relative to the $180bn in assets (>10% equity to assets).
Book value has been growing consistently (seen in the chart above) with no major asset writedowns.
Returns on equity (ROTCE) have been improving since the company came public
And Citizens has been a large share repurchaser with >$1bn repurchased in each of 2018-2019 (which has dropped to zero in 2020 due to a regulator mandate).
They’ve had to build $1.5bn in provisions during 2020 but that seems relatively small on the $120bn+ loan book. I’m sure there are other potential pitfalls but perhaps Citizens is being overly penalized relative to other regional players?
Other macro considerations for banks and financials could be the improving yield curve trend, possibility for inflation, and the return of share repurchases — after all, if they can’t grow via net interest margins, at least they can plow that extra cash back into their own shares at low multiples!