Tuesday, 13 October 2015

JP Morgan shares: getting closer to a buying point

Welcome to the banks earnings week.  It is going to be a complex one...as this chart from today's JP Morgan results show with material significant items including legal expenses and tax benefits.

Note too the interesting combination of overall balance sheet decline of '$156B YTD' with 'core loans up 15% yoy and 4% qoq'.  I also see that tangible NAV is up over 7% in the last year and capital has been generated.  

So clearly good and bad points.  A quarter ago I noted the scope for considering the share below a US$60 share price (currently just above these levels in the futures market)...

I talked a quarter ago (link here) about waiting for the US$54 support level to trade back into the US$60s.  Keep up this trend - assisted by brokerage like the reasonably recent Goldman Sachs piece talking about a break-up - and sub US$60 for a run to the mid-US$60s may work.  

...and this level is pretty justifiable with a 12% RoE and a US$47.36 tangible book value per share which gives a neutral level of c. US$56.8 (1.2 * 47.36) which when rolled forward to next year suggests a US$60+ fair value. Add in a 2.8% dividend yield plus the above noted buybacks and shareholders are being remunerated too.

Nothing too dire in the outlook statement with core loan growth good and continued efforts to reduce the cost base but mortgage lending plus the CIB unit are not too great.  The CFO also told analysts on the latter area to reduce their estimates.

They remain fairly chilled re the loan book...

said they STRESS test loans for $30 for 18 months and their loans are NOT an issue

(h/t @apppro1)

...and loan growth is solid:

growing deposits at twice industry rate - perhaps tied to mobile banking says CFO.

(h/t @carletonenglish)

My gut feel - and for what it is worth they remain fairly optimistic about the US economy - a fall below a US$60 share price is a potential level to start accumulating the share.  The risks with the company - consistent with most banks - is macro and JPM is fairly well advanced on the self-help game. I can find European names (Barclays, RBS etc.) that have more natural self-help capabilities but for the first time in a while am building towards buying some JPM shares.

Just awaiting that clear fall below US$60/share. 

No comments:

Post a Comment