Thursday, 15 October 2015

Citigroup is more persuasive as an investment for me than Goldman Sachs

I last talked about Citigroup and Goldman Sachs on the same posting here back in July.  I noted back then for the former that:

'Of all the US banks I have looked at this quarter so far Citigroup stands out as the cheapest/best value'.

This still appears to be the case as I noted on Twitter earlier:

tangible book value up 4.6% yoy vs 7% odd for & . Still pre-market up 2% on nos as $60 tangible BV vs 10-11% RoTe = value IMO

Probably the best interesting trend in the numbers referenced the fall in expenses (-18% Q3 yoy) but the rise in earnings before tax (EBT) of 12% over the same period.  Yes, hardly classic growth conditions but reasonable enough given the backdrop.  Note too the lack of loan/deposit growth which is different to the more ebullient Wells Fargo or even JP Morgan.


Using the above Twitter noted statistics a fairer value to me for Citigroup shares is in the lower US$60s or getting on for US$10 above the current share price.  There is a relative lack of growth today...but note the embedded greater emerging market banking opportunity versus other big US banks.  Citi for me remains the most interesting US bank to own (that I have reviewed so far).

Contrast this to Goldman Sachs where book value actually rose more...

...and being generous an applying the relatively muted (by GS standards) 8.8% RoE for the first nine months of the year gives a fair value of around US$150.  To justify the company's current US$180+ share price you would need to see a return to double digit RoE...certainly possible but, at least for me, necessarily a partial leap of faith today (better markets, benefit of leverage etc.)
Between the two names I think Citigroup is more persuasive.  

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