Citigroup Inc

Citigroup Inc (NYSE: C) is the leading global bank with around 200 million customer accounts. It provides various financial products and services that include consumer banking as well as credit, corporate and investment banking, securities brokerage, transaction services, and wealth management. Its business segments comprise Global Consumer Banking (GCB), Institutional Clients Group (ICG), and Corporate/Other.

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

• Revenue declined by 1% YoY to $17.2 billion as it included a pre-tax loss of around $680 million with respect to the sale of the Australian consumer business in Global Consumer Banking (GCB).
• Without considering the loss on the sale, revenues grew by 3% mainly supported by growth across the Institutional Clients Group (ICG).
• Net income surged by 48% YoY to $4.6 billion led by the benefit of lower cost of credit, partly offset by the lower revenues and higher expenses.
• Earnings per share increased to $2.15, up by 58% YoY due to the growth in net income and a 3% decline in shares outstanding.
• Citigroup's end-of-period loans mostly remained in line with the prior-year period at $665 billion on a reported basis. While the end-of-period deposits increased by 7% on a reported basis and 6% on constant dollars basis to $1.3 trillion.

Exhibit 1: Performance Trend

Source: Analysis by Kalkine Group

Maintained a Robust Capital Position

Citigroup ended Q3FY21 with a Common Equity Tier One ratio of 11.7%. Citigroup’s SLR stood at 5.8%, unchanged from the prior quarter. Further, its book value per share, as well as tangible book value per share, increased to $92.16 and $79.07, up by 9% and 10%, respectively, primarily driven by net income. Besides, it has repurchased 43 million common shares in Q3FY21 and returned an overall $4.0 billion to common shareholders through common share repurchases and dividends. In year-to-date, it has returned ~$11 billion to its common shareholders.

Invested Towards Strategic Initiatives

In the press release dated 9 November 2021, Citi and the Citi Foundation declared that the Action for Racial Equity initiative has already invested $1 billion in strategic initiatives. These investments are towards assisting in closing the racial wealth gap along with boosting the economic mobility in the United States in the first year of a three-year commitment.

Formed Partnership to Fast Track Development of Clean Energy Technologies

The company has recently announced a partnership with Breakthrough Energy Catalyst, a groundbreaking program from Breakthrough Energy. This partnership is aimed at fast-tracking the development of clean energy technologies that will support attaining net-zero emissions by 2050. Since it is an anchor partner, the company is expected to commit $100 million over the next five years in order to finance the program’s efforts to rapidly scale and commercialize climate technology projects.

Key Metrics

Citigroup’s interest income and interest expense increased at a CAGR of 0.04% and 3.8% over FY16-20, respectively. Citigroup’s efficiency ratio stood at 66.8% in FY 2020 as compared to the industry median of 71.4%.

Exhibit 2: Key Financial Metrics

Source: Analysis by Kalkine Group

Top 10 Shareholders: The top 10 shareholders together form 28.94% of the total shareholding while the top four constitute the maximum holding. Notably, The Vanguard Group, Inc. and BlackRock Institutional Trust Company, N.A. are holding a maximum stake in the company at 8.43% and 4.75%, respectively, as also highlighted in the chart below.

Exhibit 3: Top 10 Shareholders

Source: Analysis by Kalkine Group

Key Risks

The group is exposed to the risk of uncertainties associated with the COVID-19 pandemic that would adversely hurt its businesses, results, and financial condition. Further, it 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.

Outlook

It is advancing with urgency on its top priorities that include - the Transformation, refreshing its strategy, and building a culture of excellence to responsibly narrow the returns gap among its peers. It is working on strengthening its risk and control environment to attain operational excellence. Further, the company’s key priorities include increasing returns for shareholders as well as boosting capital return over time. Besides, Citigroup after returning around $11 billion to shareholders by way of healthy dividends and stock repurchases to date in 2021, it remains committed to returning surplus capital over and above the required amount towards investment in its franchise and sustaining its safety and soundness.

Valuation Methodology: Price/BVPS Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Orange Color Line Reflects RSI (14-Period)

Stock Information                                           

The stock has been valued using a Price/BVPS 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/BVPS Multiple (NTM) (Peer Average) considering decent outlook as well as rise in net income in Q3 FY 2021 on the YoY basis.

Considering the aforementioned factors, we give a “Buy” recommendation on the stock at the current market price of $67.74 per share, down by 1.45% on 16^th November 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