Federated Hermes, Inc.

FHI Details

Federated Hermes, Inc. (NYSE: FHI) is a global investment management company with assets under management of USD 625.0 billion as of March 31, 2021. The company provides investment solutions such as equity, fixed-income alternative / private markets, multi-asset, and liquidity management strategies, to corporates, government entities, insurance companies, banks, and broker/dealers. As of July 07, 2021, the company’s market capitalization stood at USD 3.29 billion.

Paving the Way for Responsible Investment: On May 13, 2021, FHI announced that it has collaborated with KKS Advisors, a leading global advisory firm, to set up a Responsible Investing Institute that will train members of investing community about responsible investing and the significance of environmental, social and governance (ESG) factors in Investments. It has developed a three-tier course covering topics from “ESG 101 to ESG Business Implementation” for investment professionals to identify ESG approaches, integrate ESG practices and take responsible investing to new and existing clients.

Q1FY21 Results: FHI reported total revenue of USD 341.17 million for Q1FY21 (ended March 31, 2021) compared to USD 359.18 million in Q1FY20, registering a decline of 5.01% YoY attributable to an increase in voluntary yield-related fee waivers in certain money market funds to maintain zero or positive net yields. Operating profit increased 5.10% YoY in Q1FY21, primarily due to decreased distribution expenses, partially offset by an increase in compensation and related expenses. Its net income for Q1FY21 was USD 74.48 million in contrast to USD 64.18 million in Q1FY20, along with a 396 bps increase in the net margin. FHI’s AUM increased by USD 19.2 billion to USD 625.0 billion as of Q1FY21 from USD 605.8 billion as of Q1FY20.

Key Risks: FHI operates as an investment management company, which is subject to several federal and state regulations both within and outside the US. The issuance of stricter regulations or an increase in SEC enforcement activity could adversely affect the operations and profitability of the company. In addition, higher interest rates could result in a decrease in liquidity and an uptick in the volatility of the money market, fixed-income, alternative/ private market, and other investment strategies. Hence, any prolonged upward movement in the interest rate could hurt the financials of the company.

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.

FHI Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: FHI has increased 7.49% and 10.96% in the past 3 and 6 months, respectively, and is currently close to the higher band of the 52-week range of USD 19.53 to USD 34.64. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is 52.25. We have valued the stock using the Price/Book Value-based relative valuation methodology and arrived at a target price of USD 28.10. Considering the consistent uptick in the stock price, we believe the current share price sufficiently reflects the business fundamentals and associated risks, and have chosen to remain on the sidelines. We, therefore, recommend an “Expensive” rating on the stock at the closing price of USD 33.42 as of July 07, 2021.

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

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

Metropolitan Bank Holding Corp.

MCB Details

Metropolitan Bank Holding Corp. (NYSE: MCB) is a New York-based state-chartered bank operating through six banking centers (four in Manhattan, one each in Brooklyn and Long Island). It provides deposit products such as savings, term deposits, money market accounts, certificates of deposit, and lending products including Commercial Real Estate loans (CRE), Multi-family Loans, and Commercial and Industrial loans (C&I) to individuals and commercial customers. CRE loans, which accounted for 61.87% of MCB’s net loans as of Q1FY21 end, are collateralized by office buildings, retail properties, hotels, and warehouses in New York City. As of July 07, 2021, the company’s market capitalization stood at USD 499.87 million.

Q1FY21 Results: The company reported a growth of 5.65% in total interest income to USD 38.11 million in Q1FY21 (ending March 31, 2021) as compared to USD 36.07 million in Q1FY20. Interest income from loans constituted 96.68% of the total interest income in Q1FY21, with the rest coming from investment securities and deposits. Improvement in the interest income can be accredited to an increase of USD 481.74 million in average loan balances, which stood at USD 3.19 billion as of March 31, 2021. 

Interest expenses decreased by 48.10% to USD 3.68 million in Q1FY21 vs USD 7.10 million in Q1FY20. Contraction in interest expense on deposits was primarily due to a 70 bps decrease in the average cost of deposits to 0.57% in Q1FY21 in contrast to 1.27% in Q1FY20. Net interest margin declined by 38 bps in Q1FY21, due to an increase in overnight deposits. MCB reported a 98.74% YoY increase in net income to USD 12.12 million in Q1FY21. Non-Performing Loans decreased 14.06% to USD 5.5 million compared to USD 6.4 million in Q4FY20.  

Key Risks: As of March 31, 2021, CRE, multi-family real estate loans, and commercial loans accounted for most of MCB’s total loan portfolio. These loans possess a higher risk than residential real estate because the collateral securing these loans may not be as quickly sold as compared to residential real estate. If these loans get impaired due to any reason, it may severely impact the company's financials. Furthermore, all of MCB's banking assets are vulnerable to volatility in interest rates. Any unfavorable movement in interest rate can negatively impact its net interest margin.

 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.

MCB Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: MCB has increased 55.46% and 86.44% in the past 6 and 9 months, respectively, and is currently close to the higher band of the 52-week range of USD 25.51 to USD 66.40. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is 35.03. We have valued the stock using the Price/Book Value-based relative valuation methodology and arrived at a target price of USD 52.91. Considering the significant uptick in the stock price, we believe the current share price sufficiently reflects the strong business fundamentals and have chosen to remain on the sidelines. Therefore, we recommend an “Expensive” rating on the stock at the closing price of USD 58.73, down by 1.97% as of July 07, 2021.

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

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