C Details

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 Q2FY21 (For the Quarter Ended 30 June 2021)

• It has recorded a 12%YoY decline in its revenue to $17.5 billion mainly due to lower revenues in both GCB and ICG segments. Further, the impact of lower interest rates also impacted revenue.
• However, its net income improved sharply to $6.2 billion from a net income of $1.1 billion in the pcp primarily driven by a lower cost of credit. However, the impact of lower revenues and higher expenses has restricted the growth.
• Its cost of credit logged a benefit of $1.1 billion, compared to a cost of $8.2 billion in the pcp owing to the impact of an improvement in net credit losses and net ACL reserve releases of $2.4 billion.
• Its loans at the end of the period stood at $677 billion, down by 1% YoY on a reported basis, while its end-of-period deposits stood at $1.3 trillion, up by 6% on a reported basis.

Exhibit 1: Performance Trend

Source: Analysis by Kalkine Group

Solid Capital Position

Citigroup ended Q2FY21 with a Common Equity Tier One ratio of 11.9%, an increase from the prior quarter level of 11.5% in Q2FY20 and 11.8% in Q1FY21. Further, it aims to sustain its return of surplus capital that will be higher than the required amount to make strategic investments. Its book value per share as well as tangible book value per share, both increased by 9% to $90.86 and $77.87 predominantly due to net income. However, it witnessed a decrease in SLR in Q2FY21 to 5.9% from the prior quarter, mainly due to the impact of the expiration of the temporary SLR relief.

Besides, Citigroup has repurchased 40 million common shares in Q2FY21 and has returned an overall $4.1 billion to common shareholders through share repurchases and dividends. While in H1FY21, it has returned around $7 billion of capital to its common shareholders.

Recent Update

The Commodity Futures Trading Commission (CFTC) has ordered Citigroup to pay $1 million towards settlement charges for its violation of swap and supervision rules as well as breach of an earlier CFTC settlement decided in 2017.

Key Metrics

Citigroup continued to witness growth in its interest income as well as interest expense over the years, barring in FY20 that translated into a CAGR of 0.04% and 3.8%, respectively over FY16-20 to stood at $58,089 million and $14,541 million, respectively in FY20. Further, its efficiency ratio rose to 66.8% in FY20 from 60.1% in FY16. However, its net interest margin remained volatile during FY16-20 as it declined to 2.16% in FY20 from 2.88% in FY16.

Exhibit 2: Key Financial Metrics

Source: Analysis by Kalkine Group

Top 10 Shareholders: The top 10 shareholders together form 28.84% 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 8.38% and 4.63%, 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 COVID-19 pandemic that would adversely hurt its businesses as well as 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

The momentum of the global recovery is surpassing previous expectations along with improving consumer and corporate confidence. Citigroup is witnessing the impact across its business as reflected in its performance in Investment Banking and Equities along with significantly higher spending on its credit cards. Further, the management remains hopeful about the momentum going forward. Additionally, the group is on an investment spree as it sustained its investment towards transformation, comprising investment in infrastructure assisting its risk and control environment, along with investments in other strategic initiatives. With an improved Common Equity Tier One ratio of 11.9% in Q2FY21, it aims to sustain the return of surplus capital, higher than the required amount towards strategic investments.

Meanwhile, it will release its Q3FY21 results on 14 October 2021.

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

Technical Overview:

Chart:

Source: REFINITIV

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

Stock Information                                           

C has delivered 9-month and one-year returns of ~+17.19% and ~+64.70%, respectively. The stock is trading higher than the average of the 52-week high price of $80.28 and the 52-week low price of $40.49.

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 Median), considering its strong capital and liquidity positions as well as significant growth in earnings in Q2FY21.

Considering the aforementioned factors along with strategic investments towards growth, we give a “Buy” recommendation on the stock at the closing market price of $71.37 per share, down by 1.23% on 28^th September 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