Citigroup, Inc.

C Details

Citigroup, Inc. (NYSE: C) is the leading global bank with around 200 million customer accounts. It provides various financial products and services that include consumer banking as well as credit, corporate and investment banking, securities brokerage, transaction services, and wealth management. Its business segments comprise Global Consumer Banking (GCB), Institutional Clients Group (ICG), and Corporate/Other.

Result Performance for Q4FY21 and FY21 (For the Period Ended 31 December 2021)

• Revenue rose by 1% YoY to $17.0 billion, supported by robust growth in Investment Banking in the Institutional Clients Group (ICG) as well as higher revenues in corporate/other.
• Net income reduced by 26% YoY to $3.2 billion due to the impact of higher expenses and was partly offset by increased revenues and lower cost of credit.
• Q4FY21 results also comprised a pre-tax impact of approximately $1.2 billion ($1.1 billion after taxes) with respect to the divestitures of Citi’s consumer banking businesses in Asia.
• For FY21, Citigroup reported a net income of $22.0 billion compared to net income of $11.0 billion in FY20 with revenues of $71.9 billion in FY21 versus revenues of $75.5 billion in FY20.
• Citigroup's end-of-period loans stood at $668 billion, down by 1% YoY on a reported basis.

Exhibit 1: Performance Trend

Source: Analysis by Kalkine Group

Continued Progress in Strategy Refresh

Citigroup is making sustained advancements in its strategy and has agreed to exit 13 consumer businesses. It has signed deals for six consumer businesses in Australia, Indonesia, Malaysia, Philippines, Thailand, and Vietnam, along with winding down of Korea consumer business. Citigroup is also making active advancements for the remaining markets.

Recently, it has announced to exit the consumer, small business, and middle-market banking operations of Citibanamex as part of its strategic refresh. At the same time, it will be sustained by operating a locally licensed banking business in Mexico through its global Institutional Clients Group. It has also reached an agreement with UOB Group on acquiring Citi’s consumer banking franchises in Indonesia, Malaysia, Thailand, and Vietnam. In contrast, it has decided to sell its consumer banking franchises in Taiwan to DBS.

Strengthened Credit Card Relationships

One of North America's largest and most experienced retail credit solution providers, Citi Retail Services recently extended its credit card relationship with ExxonMobil. For the last 15 years, the two brands have been deeply committed to offering best-in-class offerings that drive significant value to  consumer credit card customers.

Maintained a Robust Capital Position

Citigroup ended Q4FY21 with a Common Equity Tier One (CET1) capital ratio of 12.2%, an increase from the prior quarter supported by the initiatives to reduce risk-weighted assets (RWA) and a temporary pause in common share repurchases. Citigroup’s SLR stood at 5.7%, a decrease from the prior quarter. Further, its book value per share as well as tangible book value per share increased to $92.21 and $79.16, up by 7% each.

Key Metrics

Citigroup’s net income has significantly improved to US$21,952 million in FY21 compared to a net loss of US$6,798 million in FY17 and US$11,047 million in FY20. Its pretax ROE rose to 13.7% in FY21 from 10.7% in FY17 and from 6.9% in FY20.

Exhibit 2: Key Financial Metrics

Source: Analysis by Kalkine Group

Top 10 Shareholders: The top 10 shareholders together form ~27.23% of the total shareholding, while the top four constitute the maximum holding. Notably, The Vanguard Group, Inc. and BlackRock Institutional Trust Company, N.A. are holding a maximum stake in the company at 8.31% and 4.75%, respectively, as also highlighted in the chart below.

Exhibit 3: Top 10 Shareholders

Source: Analysis by Kalkine Group

Key Risks

The group is exposed to the risk of uncertainties associated with the COVID-19 pandemic that would adversely hurt its businesses, results, and financial condition. Further, it is susceptible to the risk of changes in regulation and legislative uncertainties in the U.S. and globally. Moreover, it operates in a highly competitive environment and the evolution of emerging technologies could fast-track disruption in the financial services industry.

Outlook

As part of Citigroup’s strategic refresh, Citigroup continues to build on strength in core franchises as well as is investing in growth prospects. It is also exploiting synergies across the firm and is focused towards lowering the structural complexity. It is aligning its organization and reporting structure with its strategy, comprising the formation of the Personal Banking and Wealth Management and Legacy Franchises segments. This will enable Citigroup to better focus on its core businesses and optimize the businesses selected to exit. Citigroup is continuing to transform the bank and has a focus towards simplification. It is also building the culture of excellence.

Valuation Methodology: Price/BVPS Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Information                                           

The stock has been valued using a Price/BVPS multiple-based illustrative relative valuation and the target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to Price/BVPS Multiple (NTM) (Peer Average) considering its strong capital position as well as decent results for Q4 FY 2021. It has also returned ~$12 billion in capital to the common shareholders in 2021.

Considering the aforementioned factors along with its progress in the execution of its growth strategy, we give a “Buy” recommendation on the stock at the closing market price of $63.89 per share, down by 0.39% on 22^nd February 2022.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.