Citigroup, Inc.

C Details

Citigroup, Inc. (NYSE: C) is the leading global bank providing various financial products and services that include consumer banking and credit, corporate and investment banking, securities brokerage, transaction services, and wealth management.

Result Performance for the Third Quarter Ended 30 September 2021 (Q3FY21)

• The company's total revenue stood at $17,154 million in Q3FY21, down 1% YoY, including a pre-tax loss of around $680 million associated with the sale of the Australian consumer business in Global Consumer Banking.
• The net income increased to $4,644 million, up 48% YoY, primarily supported by a lower cost of credit, which helped to outweigh the impact of lower revenues and higher expenses.
• Earnings per share rose to $2.15, up by 58% YoY driven by the growth in net income and a 3% decline in shares outstanding.

Financial Results (Source: Company Report)

Recent Update

• As per the press release dated 6 October 2021, the company, acting through Citibank N.A., has been selected by Exscientia plc, pharmatech company, to perform as depositary bank for its American Depositary Receipt programme.

Outlook

The company is witnessing active client engagement as reflected in its strong investment banking and equity markets results, which reported a growth of around 40% YoY. Further, it is witnessing higher consumer spending across its card’s products and impetus in deposits and wealth management AUM and increasing engagement across its digital channels. Broadly, the company has already returned around $11 billion in 2021 to date to shareholders by way of dividend and stock repurchases; it is confident of returning excess capital higher than the requisite amount towards investment in its franchise and required levels.

Key Risks

The group is susceptible to the risk of changes in regulation and legislative uncertainties in the U.S. and globally. Moreover, it operates in a highly competitive environment, and the evolution of emerging technologies could fast-track disruption in the financial services industry.

Valuation Methodology: Price/Book Value Per Share Based Relative Valuation (Illustrative)

Technical Overview:

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

Stock Recommendation

The company has delivered a 9-month and one-year return of ~+2.52% and ~+64.42%, respectively. The stock is trading higher than the average of the 52-week high price of $80.29 and the 52-week low price of $40.49.

The stock has been valued using a P/BV multiple-based illustrative relative valuation, and the target price so arrived reflects a rise of low double-digit (in % terms). Accordingly, a slight premium has been applied to P/BV Multiple (NTM) (Peer Average), considering its significant growth in net earnings in Q3FY21 and firm performance in Investment Banking and Equity Markets business.

Considering the aforementioned factors, a “Buy” recommendation has been assigned on the stock at the current market price of $69.86 per share, (Time: 10.16 AM, NY, USA) as of 14^th October 2021. 

Wells Fargo & Company

WFC Details

Wells Fargo & Company (NYSE: WFC) is a major financial services company. It provides a diversified set of banking along with investment and mortgage products and services, consumer, and commercial finance.

Result Performance for the Third Quarter Ended 30 September 2021 (Q3FY21)

• The net interest income stood at $8,909 million in Q3FY21, down 5% YoY owing to the impact of lower loan balances and lower yields on earning assets. However, this was partly offset by a reduction in long-term debt and lower mortgage-backed securities premium amortization.
• The company increased capital return to shareholders through the repurchase of $5.3 billion of common stock and a higher dividend in Q3FY21.
• The common stock dividend rose to $0.20 per share in Q3FY21 from $0.10 per share in the prior quarter.
• Nonperforming assets declined by 4% in Q3FY21, and the nonaccrual loans were also reduced by $313 million in Q3FY21, mainly due to the fall in commercial nonaccrual loans.

Key Data (Source: Company Report)

Key Update

On 15 September 2021, the company has declared its new digital infrastructure strategy, which combines a multi-cloud method to deliver technological speed, agility, and scalability for its customers and employees.

Outlook

The company holds a Common Equity Tier 1 (CET1) capital of $141.6 billion, with the CET1 ratio stood at 11.6% under the standardized approach and 12.4% under the advanced method. Besides, the company is in an investment phase as it is undertaking investments in risk and associated regulatory activities. Further, it is making customer experience investments that comprise new digital and mobile skills, a new digital infrastructure strategy, and new products that provide exclusive benefits.

Key Risks

Worsening in economic conditions or the financial markets would adversely hurt its lending and financial results and condition. In addition, changes in interest rates and financial market values may negatively impact its net interest income and earnings. Further, its business is exposed to substantial and extensive regulation.

Valuation Methodology: Price/Book Value Per Share Based Relative Valuation (Illustrative)

Technical Overview:

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

Stock Recommendation

The company has delivered a 9-month and one-year return of ~+30.47% and ~+95.01%, respectively. The stock is trading higher than the average of the 52-week high price of $51.41 and the 52-week low price of $20.76.

The stock has been valued using a Price/BV multiple-based illustrative relative valuation, and the target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to Price/BV Multiple (NTM) (Peer Average), considering its improvement in net income along with momentum in efficiency initiatives and increased capital return to shareholders.

Considering the above factors, a “Buy” recommendation has been assigned on the stock at the closing market price of $45.31 per share, down by 1.61% as of 14^th October 2021. 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices

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