Farmers & Merchants Bancorp, Inc.

FMAO Details

Farmers & Merchants Bancorp, Inc. (NASDAQ: FMAO) is a bank holding company for The Farmers & Merchants State Bank that serves people and small businesses with commercial banking, retail banking, and other financial services. The bank operates 28 offices across northwest Ohio and northeast Indiana, a drive-up facility in Archbold, Ohio, and three loan production offices (LPOs). As of July 01, 2021, the company’s market capitalization stood at USD 244.29 million.

Strategic Merger Agreement: On May 04, 2021, FMAO signed a contract to acquire Perpetual Federal Savings Bank (PFSB), an Ohio-based financial products and services provider, in a cash and stock transaction valued at USD 103.7 million. This merger is expected to create synergies that will help FMAO in boosting its revenues.

Q1FY21 Results: The company reported a 7.0% increase in net interest income to USD 15.04 million in Q1FY21 (ended March 31, 2021) compared to USD 14.05 million in Q1FY20. Net income for Q1FY21 increased by 19.59% to USD 4.91 million, compared to USD 4.11 million in Q1FY20. Net Interest Margin (NIM) decreased by 42 bps YoY to 3.33% in Q1FY21. As of March 31, 2021, FMAO recorded a 5.49% increase in total deposits to USD 1.68 billion compared to USD 1.60 billion at the end of FY20. Non-Performing Loans (NPLs) decreased by 13.45% as of March 31, 2021 to USD 8.14 million from USD 9.40 million reported at FY20 end.

FMAO Loan & Deposit Growth (Source: Investor Presentation, Q4FY20)

Key Risks: Real estate loans make up a substantial portion of FMAO's loan portfolio, which is focused in and around its primary markets in northwest Ohio and northeast Indiana. Due to market conditions, the market value of real estate can change dramatically in a short period. Furthermore, real estate loans typically have higher principal amounts, and repayment is frequently based on the revenue generated by the assets that secure the loans. Economic events or governmental laws outside the borrower's control could have a detrimental influence on future cash flows and market values of the properties involved.

Outlook: Customer acquisition and retention, talent development, accretive acquisitions, solid financial and operational performance, and digital strategy development were all areas where the company made considerable progress in FY20. As a result, it anticipates a significant increase in profitability in FY22, with an expected USD 2.1 million annual benefits to the net income, as a result of reduced operating expenses and the contribution of additional sources of revenue.

Valuation Methodology: Price/Book Value Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

FMAO Daily Technical Chart

Stock Recommendation: FMAO stock fell by 12.84% in the past 3 months and is currently leaning towards the lower-band of the 52-week range of USD 19.50 to USD 27.58. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is 46.39. We have valued the stock using the Price/Book Value-based relative valuation methodology and arrived at a target price of USD 25.69. On the technical chart, the next support level is USD 19.50. Considering stable growth, consistent dividend yield, decline in NPLs, current valuation, and associated risks, we recommend a “Speculative Buy” rating on the stock at the closing price of USD 21.92, up 0.46% as of July 01, 2021.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.