Federated Hermes, Inc.

FHI Details

Federated Hermes, Inc. (NYSE: FHI) operates as a global investment manager with USD 625.0 billion in assets under management as of March 31, 2020. The company offers investment solutions, including equity, fixed-income, alternative / private markets, multi-asset and liquidity management strategies, to corporations, government entities, insurance companies, foundations and endowments, banks, and broker/dealers. As of May 28, 2021, the company’s market capitalization stood at USD 3.16 billion.

FHI Overview (Source: Analyst Update Presentation, March 31, 2021)

Launch of Responsible Investing Institute: On May 13, 2021, the company announced the launch of the Responsible Investing Institute to train members of the investing community about responsible investing and the role of environmental, social, and governance (ESG) factors in investments. FHI teamed up with KKS Advisors to develop a three-course curriculum, which would cover topics from “ESG 101 to ESG Business Implementation”.

Asset Acquisition Agreement with Horizon Advisors: On April 26, 2021, the company reached an agreement to acquire certain investment management related assets worth USD 568.0 million of Horizon Advisors and reorganize the portfolios of Hancock Horizon mutual funds (seven equity and two municipal bonds) into one new and six existing Federated Hermes mutual funds with comparable investment objectives and strategies. The transaction is expected to be completed in Q4FY21.

Q1FY21 Results: The company reported a slight decrease of 5.01% in total revenue to USD 341.17 million in Q1FY21 (ending March 31, 2021) compared to USD 359.18 million in Q1FY20, primarily due to an increase in voluntary fee waivers related to certain money market funds (for those funds to maintain positive or zero net yields). The net income for Q1FY21 was USD 74.48 million, 16.06% higher than USD 64.18 million in Q1FY20. The company’s total managed assets stood at USD 625.0 billion at the end of Q1FY21 vs USD 605.8 billion at the end of Q1FY20.

Key Risks: Given the nature of its business, the company and its investment management business are subject to extensive federal and state regulation, both within and outside the US. Historically, these laws have been augmented or amended substantially and can change at any time in the future, which can affect the company's business and results of operations. In addition, increases in interest rates could also hurt FHI’s revenue from the money market, fixed-income, alternative / private markets, and other products and strategies. Among other potential adverse effects, rising interest rates can result in decreased liquidity and increased volatility in the markets and could negatively impact the performance of and revenue from the company’s products and strategies.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Data Source: REFINITIV, 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 increased by 19.01% and 34.90% in the past 3 and 9 months, respectively, and is currently leaning towards the higher end of the 52-week range of USD 19.53 to USD 34.03. The stock is currently trading above its 200 DMA levels. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 27.67. Considering the consistent increase in stock price, decent financials, significant interest rate risk, and current valuation, we recommend an “Expensive” rating on the stock at the closing price of USD 31.80, down by 1.03% as of May 28, 2021.

* 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 the holding company of Metropolitan Commercial Bank, a New York-based state-chartered savings bank. The company operates with six banking centers, out of which four are in Manhattan, New York, one is in Brooklyn, New York, and one is in Long Island, New York. It provides a broad range of commercial and retail banking products and services to small businesses, enterprises, and prosperous individuals in New York. The company provides various lending products such as Commercial Real Estate loans (CRE), Multi-Family Loans, and Commercial and Industrial loans (C&I). The majority of the loans are CRE loans collateralized by office buildings, retail properties, hotels, and warehouses in New York City. As of May 28, 2021, the company’s market capitalization stood at USD 531.75 million.

Q1FY21 Results: The company reported a 5.65% growth in total interest income to USD 38.10 million inQ1FY21 (ending March 31, 2021) compared to USD 36.06 million in Q1FY20 (ending March 31, 2020). Interest income from loans constituted 96.67% of the total interest income in Q1FY21, while the rest comes from securities, overnight deposits, and other interest and dividends. The company reported a significant rise of 98.73% YoY in net income to USD 12.11 million compared to USD 6.09 million in Q1FY20. As of Q1FY21, the company recorded a 15.60% growth in total deposits to USD 4,427 million compared to USD 3830 million as of Q4FY20. Net Interest Margin (NIM) decreased by 38 bps YoY to 3.00% for Q1FY21, primarily due to increased overnight deposits. Non-Performing Loans (NPAs) decreased by 14.06% to USD 5.5 million as of Q1FY21 compared to USD 6.4 million as of Q4FY20.

MCB Balance Sheet Growth (Source: Investor Presentation, 1QFY21)

Key Risks: As of March 31, 2021, the healthcare industry was the largest contributor to the company’s loan portfolio, accounting for USD 843 million or 26% of the total loans originated, including USD 727.60 million in loans to Skilled Nursing Facilities (SNF). If these loans get impaired due to any reason, it may severely impact the company’s financials.

Valuation Methodology: Price/Book Value Multiple Based Relative Valuation

(Data Source: REFINITIV, 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 stock price has surged by 110.24% in the past nine months and is currently tipping towards the higher end of the 52-week range of USD 25.51 to USD 65.19. We have valued the stock using the Price/Book Value-based relative valuation methodology and arrived at a target price of USD 54.70. The stock is currently trading much above its 200 DMA levels. Considering the growth in the balance sheet, the decline in NPAs, significant increase in the stock price in the past nine months, and current valuation, we recommend an “Expensive” rating on the stock at the closing price of USD 63.81, up by 0.13% as of May 28, 2021.

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