Financial_Stocks_SU03.ppt

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  • Using consumer information from its colossal databases, the company matches a potential Visa or MasterCard customer to any one of thousands of different cards.
  • Price amplifies S&P results – this will be good if an upturn is expected PE ratio is 10.7 – will take about this later
  • Net interest income grew by 50% Provision for Loan Losses grew by 91% - taking more risky bets Higher risk strategy seems to be paying off – EPS growing @ 30%
  • Point out the Total Loans Net has been increasing, although at a slower rate.
  • ROE has been decreasing as a function of deleveraging
  • When line is below zero, delinquency rate is improving
  • Financial_Stocks_SU03.ppt

    1. 1. FINANCIAL SECTOR COMPANY PRESENTATION Jonathan Carroll Aran Cross Yaofeng Dong Garrod Gibb Scott Mann August 18, 2003
    2. 2. <ul><li>Our Recommendation </li></ul><ul><li>Cut/Add </li></ul><ul><ul><li>Business Analysis </li></ul></ul><ul><ul><li>Financial Analysis </li></ul></ul><ul><ul><li>Valuation Analysis </li></ul></ul><ul><ul><li>Rationale </li></ul></ul><ul><li>Conclusion </li></ul>OUTLINE
    3. 3. MAINTAIN WEIGHT 1.21% 1.69% 3.22%
    4. 4. MAINTAIN WEIGHT 4.52% 2.58% 5.62%
    5. 5. BUY/CUT 1.46%  2.72% 1.26%  0% Total Financials SIM Weight 21.55%  21.55%
    6. 6. <ul><li>Global Financial Services Provider incorporated in 1968 </li></ul><ul><ul><li>Investment Banking </li></ul></ul><ul><ul><li>Treasury and Securities Services </li></ul></ul><ul><ul><li>Investment Management & Private Banking </li></ul></ul><ul><ul><li>JP Morgan Partners </li></ul></ul><ul><ul><li>Chase Financial Services </li></ul></ul><ul><li>December 31, 2000 JP Morgan merged with Chase Manhattan Corporation </li></ul>BUSINESS ANALYSIS
    7. 7. FINANCIAL ANALYSIS – Income Statement
    8. 8. FINANCIAL ANALYSIS – DuPont Analysis
    9. 9. FINANCIAL ANALYSIS – Valuation
    10. 10. FINANCIAL ANALYSIS – Valuation P/E, ROE Relative to S&P 500
    11. 11. FINANCIAL ANALYSIS – P/E, ROE Relative to Sector
    12. 12. <ul><li>ROE significantly below sector, S&P 500 average </li></ul><ul><li>Valuation high compared to sector, S&P 500 average </li></ul><ul><li>Litigation over Analyst Recommendations </li></ul><ul><li>Declining growth rate </li></ul><ul><li>Low expectations for refinancing </li></ul><ul><li>Poor indicators </li></ul>RATIONALE
    13. 13. Insider Transactions         -160,299     160,299     0     6     0     Last 12 months       -123,299     123,299     0     5     0     Last 6 months       -105,599     105,599     0     2     0     Last 3 months       Net Shares   Sold   Bought   Sells   Buys   Change in     Shares     Shares     # of     # of           Transaction Summary    Total insider purchases and sales reported to the SEC.
    14. 14. Indicators * estimate of current assets 1.35% Common stock 9.90% Liabilities -2.88% Goodwill 8.53% PP&E 18.90% Current Assets*
    15. 15. <ul><li>Diversified Financial Services </li></ul><ul><li>Holding company incorporated in 1995 </li></ul><ul><ul><li>Capital One Bank </li></ul></ul><ul><ul><li>Capital One FSB </li></ul></ul><ul><ul><li>Capital One Services Inc. etc. </li></ul></ul><ul><li>Subsidiaries market financial products and services to consumers </li></ul><ul><ul><li>Primary business is consumer lending with focus on credit card lending </li></ul></ul><ul><ul><li>One of top six credit card issuers </li></ul></ul>BUSINESS ANALYSIS
    16. 16. <ul><li>Corporate Strategy </li></ul><ul><ul><li>Targeting specific consumer segments </li></ul></ul><ul><ul><li>Tailoring products meet specific consumer needs </li></ul></ul><ul><ul><li>Using an information technology based strategy (IBS) to leverage proprietary information </li></ul></ul><ul><ul><li>Heavy investment in marketing </li></ul></ul><ul><ul><li>Take all levels of risk and price accordingly </li></ul></ul><ul><ul><ul><li>Higher risk borrowers tend to be more likely to pay late or exceed their credit limit, which generally results in additional fees assessed to their accounts. </li></ul></ul></ul>BUSINESS ANALYSIS
    17. 17. STOCK PRICE
    18. 18. FINANCIAL – Income Statement
    19. 19. FINANCIAL – Balance Sheet
    20. 20. FINANCIAL – Cash Flow <ul><li>Total cash down 55% as a function of increased loans </li></ul><ul><li>Operating Cash increased by 64% - bringing in more interest and fee income </li></ul>
    21. 21. 26.07% 27.01% 24.29% 22.64% ROE 29.70% 28.70% 25.70% 25.80% Asset Turnover 24.71% 22.63% 21.58% 21.44% Operating Margin 1999 2000 2001 2002 8.17 9.27 8.91 8.25 Leverage 1.83 2.39 3.05 3.93 EPS FINANCIAL ANALYSIS – Dupont Analysis <ul><li>MBNA: ROE 19.6%; Margin 17.2%; Asset Turn 20%; Leverage 5.8% </li></ul><ul><li>AMX: ROE 19.5%; Margin 11.4%; Asset Turn 20%; Leverage 10.9% </li></ul>
    22. 22. Delinquency Rate
    23. 23. Price/ROE/EPS/GRE Relative to S&P) FINANCIAL ANALYSIS –
    24. 24. Price/ROE/EPS/GRE Relative to Financial Sector FINANCIAL ANALYSIS –
    25. 25. <ul><li>45.8 million managed accounts and $60.7 billion in managed loans outstanding </li></ul><ul><li>35 consecutive quarterly dividend (2 2/3 cents) </li></ul><ul><li>Highlights from 2Q earnings announcement: </li></ul><ul><ul><li>Profit up 34%, to $1.23 per share from $.92 per share a year ago, beating the consensus by $.13 a share </li></ul></ul><ul><ul><li>Net charge-off rate for bad debts fell to 6.32% from 6.47% a year ago </li></ul></ul><ul><ul><li>Risk-adjusted revenue margin declined to 9.23% from 12.53% a year ago </li></ul></ul>RATIONALE
    26. 26. <ul><li>3 Catalysts: </li></ul><ul><ul><li>Improving delinquency rates </li></ul></ul><ul><ul><li>Consumer credit spending should increase as economy improves </li></ul></ul><ul><ul><li>Bullish on the chart </li></ul></ul>RATIONALE
    27. 27. RATIONALE
    28. 28. Recommendations 1.46%  2.72% 1.26%  0% Total Financials SIM Weight 21.55%  21.55%
    29. 29. QUESTIONS

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