Wednesday, 14 October 2015

Financials wrap: Wells Fargo, Bank of America and Blackrock

Lots of financial sector numbers out today.  Starting with Wells Fargo I have never been a huge fan (as noted here) and - to be honest - today's numbers do not hugely change my mind.  The numbers were typical Wells Fargo with generally good progress in most metrics...

...and high diversification of revenues... some element of capital generation: 

The theoretical attractive 'buy' valuation level is still coming out for me around the mid US$40s using my preferred price:book / return on equity methodology.  Given the current share price just over US$50 the shares are still a 'watch' for me. 

One area where I may be wrong are the recent bevy of financial businesses from GE (as noted below).  Wells Fargo noted the attractiveness of the acquisitions but due to some costs associated with this full accretion is coming in year three.

Overall my view would be that there is still too high a premium rating on Wells Fargo shares for me to be interested.  Undoubtedly a quality business...but I am still waiting for that mid US$40s fall.  As noted at the link above, JP Morgan shares below US$60/share look more interesting to me (i note over the last year a similar c. 7% rise in the tangible book value for both businesses).  

How about Bank of America?  I said in July to buy the stock below US$16 a share and looking at the recent chart this is the current level of the share (and has been for the last few weeks):

So what to make of today's results?  Well baldly they still justify a sub US$16 level as being an interesting one given a 10% return on tangible equity on a US$15.5 book...

...which equated to a 10% rise year-on-year.  Better than the 7% growth statistic mentioned above for both Wells Fargo and JP Morgan. The dividend yield however at around 1.3% is around half the level of the other two entities however (all three are also buying back stock).  This tips me in favour of JP Morgan still at the margin between the three.  

A final financial to look at today: Blackrock.  Back in July I observed that 'from an active perspective note the improvement in the active equity performance and the deterioration in active fixed income performance.  The first sign of a long-awaited improvement?' and looking at this quarter's updated statistics...this trend continues.  As I tweeted out a little while ago:

Good see higher % active fundamental equity funds over 1 yr o/perf b'marks. Start re-rise active vs passive?

Here's hoping! 

(actually I strongly believe it - correlations recently too high / Q3 earnings season to show the value of differentiated company insights/capabilities).  

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