C Details

Citigroup Inc (NYSE: C) is the leading global bank with around 200 million customer accounts. It provides various financial products and services that include corporate and investment banking, securities brokerage, transaction services, wealth management, etc.

Result Performance for Q1FY22 (For the Quarter Ended 31 March 2022)

• Total revenue declined by 2% YoY to $19.19 billion as strength in NII, driven by Services and PBWM was nullified by the impact of lower non-interest revenue across businesses.
• Net income reduced by 46% YoY to $4.31 billion owing to the impact of lower ACL releases, as well as higher expenses and lower revenues.
• Citigroup's end-of-period loans stood at $660 billion at the end of Q1FY22, down by 1% YoY. However, the end-of-period deposits increased by 3% to $1.3 trillion as of quarter end supported by an 11% increase in PBWM and a 3% increase in ICG.

Exhibit 1: Performance Trend

Source: Analysis by Kalkine Group

Continued Progress on Global Consumer Exits

Citi, recently, entered into an agreement to sell consumer bank in Bahrain, excluding Citi’s institutional businesses to Ahli United Bank B.S.C. This signifies its ninth sale by Citi in APAC/EMEA regions ever since the Strategy Refresh being announced by Citi. It is further advancing on its strategy on the remaining consumer exit markets. This transaction is expected to contribute slightly to its earlier announced release of approximately US$7 billion of allocated tangible common equity over time from the exit of its consumer franchises in 13 markets in Asia Pacific and Europe, Middle East, and Africa.

Reducing its Exposure on Russia

In March 2022, Citigroup has agreed to exit the commercial banking in addition to its intention to exit its consumer business in Russia announced in April 2021. It has lowered its overall Russia exposure from $9.8 Bn as of December 31, 2021, to $7.8 Bn as of March 31, 2022. Moreover, its net investment in the Russia bank entity lowered to ~$700 Mn from ~$1B.

Key Metrics

Citigroup’s pretax ROE rose to 13.7% in FY21 from 6.9% in FY20 and from 10.7% in FY17. Its pretax ROA also increased to 1.2% in FY21 from 0.6% in FY20, while it was down from 1.3% in FY17.

Exhibit 2: Key Financial Metrics

Source: Analysis by Kalkine Group

Top 10 Shareholders: The top 10 shareholders together form 28.80% of the total shareholding while the top four constitute the maximum holding.

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 and the evolution of emerging technologies could fast-track disruption in the financial services industry.

Outlook

Despite the volatile geopolitical and macro environment, Citigroup is executing the strategy. While geopolitics impacted the performance in Wealth Management, the bank has been hiring bankers, enhancing the client offerings as well as is adding clients in both the Private Bank as well as in Citigold.

Further, Citigroup is undertaking requisite investments in its infrastructure, risk and controls and its businesses as it remains focused on improving its returns over the medium term. The bank’s key priorities include driving the revenue growth, disciplined expense management as well as maintaining robust capital & liquidity.

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

Technical Overview:

Chart:

Source: REFINITIV

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

Stock Recommendation                               

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 the progress on its strategic priorities, and strong revenue growth in services in Q1FY22.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the aforementioned factors, we give a “Buy” recommendation on the stock at the closing market price of $53.41 per share, down by 0.39% on 31^st May 2022.

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