Tuesday, 21 July 2015

Time for me to sell a spin-off: Citizens Financial

I like spin-offs and generally the progressive sales/placings of stock by the exiting parent company should be viewed as an opportunity and not a threat. Certainly that was my view of Citizens Financial as I talked about here a couple of months ago when RBS did a large placing of stock.

At the time the Citizens' stock was a little under US$25.  Today it trades for just over US$27.  So a 'result'?  Well...it depends on how you review today's 3%+ fall...

So why the fall?  Ultimately it comes down to one key chart from the presentation deck and the observation of 'broadly reaffirm overall FY 2015...(but the) achievement of 10% ROTCE run-rate target by end 2016 is likely pushed out...will provide 2016 guidance in January 2016':
Oh dear.  I had noted already the poor trends of net interest margin...
 ...that certain growth initiatives were coloured 'amber' and hence a bit behind the curve...
 ...and that despite a static loan-to-deposit ratio, the company was no longer accumulating capital (although in absolute terms its capital ratios remain absolutely fine).

So what to think?  Well as I concluded a couple of months ago that the hope of achieving a 10% ROTCE opened up the potential for a US$27-30 share price.  With this being pushed back the share at c. US$27 feels there or there abouts.

Citizens Financial has been a great spin-off since the IPO but it feels time to tactically say goodbye to the share.  Somewhere at/around that US$24 share price I might feel differently.

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