market folly

We're posting up notes from the Invest For Kids Chicago conference 2015.  Next up is David Samra of Aritsan Partners who pitched RBS.


David Samra's Invest For Kids Chicago Presentation

•    Stock pitch is RBS.
•    Generally don’t like banks. 13 years, first ten didn’t own any banks.
•    Everybody hates banks.
•    Banks are generally difficult investments as money is commodity and banks are inherently leveraged.
•    When economic conditions are good, loan underwriting is sloppy and regulatory oversight is weak. Valuations then trade at a premium to book value.
•    Versus FY08, funding structure has improved. For RBS deposits has since doubled and use of repos has diminished as well as commercial paper issuance.
•    Complexity has decreased overall for banking. Similar trends for the UK.
•    P/BV multiples have went from over 2.0x to in some cases below book.
•    Today banks are better funded, higher quality assets, significant liquidity and trade at lower valuations.
•    Don’t want to be in them forever.
•    Right now 965B in gross assets, 44.5B of tangible equity and 586MM of pretax income. Going forward looking at 480B of assets, 25B of tangible equity and 4.4B of pre-tax.
•    Bailed out twice. UK gov owns 73% of shares outstanding, effectively nationalized. Mgmt has been selling assets and simplifying operations.
•    Sold off a trillion pounds of assets. Equity has increased from 36.4B to 44.5B.
•    16% tier 1 capital ratio. Highest amongst large banks.
•    Continue to sell assets and slim down to a retail/commercial bank. Shrink the investment bank. Wil take 3-5 years.
•    Top 5 banks control most of the market.
•    Thinks the core bank value should trade at 1.7x bv and 13.5x earnings or 43B, plus excess capital no longer required to support non-core assets (RWA of 150Bn) or 18B.
•    Need to deduct fines, write downs, etc. of 13BN
•    Add 16bn of earnings over next five years, estimated mkt value of 64bn versus 36bn  current market cap.
•    Risks government ownership – significant headline risk concerning fines, restricting, diminished asset liquidity and economic recession – time delay.


Check out the rest of the presentations from Invest For Kids Chicago 2015.