Citigroup Inc

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

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.
• Citigroup's end-of-period loans mostly remained in line with the prior-year period at $665 billion on a reported basis.

Exhibit 1: Performance Trend

Source: Analysis by Kalkine Group

Announced a Notable Redemption of Fixed Rate Notes

Citigroup recently has declared redemption, in whole, €1.0 Billion of 0.500% Fixed Rate Notes Due 2022. The redemption of the notes will be undertaken on 29 December 2021. The cash price payable for the notes will be equal to par in addition to the accrued and unpaid interest. This initiative is in line with Citigroup's liability management strategy and its sustaining efforts to improve the efficiency of its funding and capital structure. Meanwhile, Citigroup will continue to look for opportunities to redeem or repurchase securities.

Enhanced End-User Experience Through New Capabilities

Citi’s Treasury and Trade Solutions (TTS) has recently improved its omnichannel electronic bill presentment and payment platform - Citi® Present and Pay for institutional billers in the U.S. The inclusion of Citi® Verify, a real-time account verification tool and electronic bill (e-Bill) distribution capabilities through Request for Pay (RfP ) messaging via the RTP© network into the platform will aid its clients in enhancing the end-user experience of their customers.

Formed Strategic Partnership

Citi Securities Services and Taskize Limited have collaborated to better manage the Counterparty Operational Workflow. This strategic agreement will assist in creating a network effect between Citi, its counterparts, and several market infrastructures to streamline the operational workflow challenges. This agreement will allow Citi Securities Services’ custody clients to utilize Taskize’s query management platform to straightaway join Citi Operations' counterparts.

Citi Global Wealth Investments In quest of Continued Returns

In the recently released outlook 2022 report by the Citi Global Wealth Investments, Citi stresses exposure to “long-term leaders,” equities in high-quality companies in expanding industries for 2022 and beyond. This would aid in providing earnings growth in the longer term. Citi, however, remains cautious given the higher inflation and bond yields staying low, and the risk that the negative real interest rates pose to wealth.

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.

Key Metrics

Its net interest margin declined to 2.16% in FY20 from 2.88% in FY16 and from 2.65% in FY19. Further, its pretax ROE declined to 6.9% in FY20 from 12.3% in FY19 and compared to 9.6% in FY16. The bank has posted deposit growth of 19.6% in FY 2020 as compared to 5.7% in FY 2019.

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 could 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.

Outlook

Citigroup is advancing with urgency on its top priorities that include - Transformation, refreshing its strategy, and building a culture of excellence to responsibly narrow the returns gap among its peers. Citigroup 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. With Citigroup returning around $11 billion to shareholders till date in 2021, the company 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:

Daily Price Chart:

Source: REFINITIV

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

Stock Information                                           

The company has delivered 9-months and one-year returns of ~-17.31% and ~+3.23%, respectively. The stock is trading lower than the average of the 52-week high price of $80.29 and the 52-week low price of $57.40.

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 its decent capital and liquidity positions as well as significant growth in earnings in Q3FY21.

Considering the aforementioned factors along with strategic investments towards growth, we give a “Buy” recommendation on the stock at the closing market price of $60.64 per share, up by 0.76% on 14^th December 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