In this report we highlight a group of U.S. banks, selected based on our stringent O’Neil Methodology (OM) and a review of the underlying fundamentals of the banking sector, that we believe may outperform the market. To identify the potential outperformers, we applied two sets of criteria. First, we looked for banks that are expected to have at least double-digit EPS growth heading into 2017. Second, we applied 20 criteria based on our O’Neil Methodology, including strong revenue growth, high ROE, and solid O’Neil Ratings, including the Relative Strength Rating, Accumulation/Distribution Rating, Composite Rating, EPS Rank, and others. Based on these two sets of criteria, the regional banks listed below meet at least 18 of our 20 OM criteria in addition to having double-digit EPS growth. From the list, we have added FRC to our U.S. Focus List. WAL, PNFP, FCB, and ABCB are Interest List-rated, as they meet 100% of the OM criteria but may be overextended or lack the technical traits needed for a proper entry into the stock. We will be monitoring all of the banks on these lists for possible inclusion on the U.S. Focus List when entry into the stock is warranted.
Author: Dean Kim
Dean Kim is an Executive Director, Research Analyst for William O’Neil + Co..
Mr. Kim joined the firm to establish equity research coverage of the financial technology (“fintech”) sector. He has unique insight into the industry’s growth drivers, with broad experience covering the financial sector as an analyst and overhauling corporate business processes as a management consultant.
Most recently, Mr. Kim served as Chief Financial Officer of Jios Aerogel Limited, a leading producer of the aerogel nanotechnology-based insulation material. As CFO, he raised more than $5 million in capital and managed liquidity, budgeting, and forecasting. Previously, he was an equity analyst for more than a decade. From 2007–2011, Mr. Kim headed equity research for BNP Paribas’ Korea office and simultaneously covered the banking sector, for which he was ranked number one by the Thomson Reuters/Joong-Ang Daily poll. He was also an equity analyst on Lehman Brothers' proprietary trading desk in Hong Kong, and on an Institutional Investor-ranked small cap team at UBS. Earlier in his career, Mr. Kim, an engineer, worked as a business process redesign specialist at Deloitte Consulting, analyzing the organization-wide processes of utilities and manufacturing companies.
Mr. Kim earned a Bachelor’s degree in Electrical Engineering at Yale University, and an MBA from Columbia Business School.
Outside of work, Mr. Kim enjoys coaching his kids’ soccer teams and traveling with his family.
Asia Watch
Today’s must-reads in Asia, curated by O’Neil Research Analysts. Asia Watch. |
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| December 9, 2016 | Derek Higa 310.448.6910 |
Retail/Consumer CyclicalChina Car Sales Rise 20% as Buyers Rush to Beat Expiring Tax Cut (bloomberg) Asian Casinos/GamblingCasino Stocks Plummet on Report of ATM Limit Imposed in Macau (bloomberg) TechnologyThe ‘Apple of China’ might be launching an electric vehicle on Monday (bi) Apple just invested in China’s largest wind-turbine maker to power its supply chain (qz) Apple argues for ban on iPhone 6 to be lifted (chinadaily) Samsung’s Heir Apparent Makes Shaky Debut as Korea’s Top Boss (bloomberg) It sounds like Apple and Samsung will release very similar smartphones next year (bi)() Consumer StaplesMoutai takes fiery spirit to Europe (chinadaily)() Basic MaterialsIndia’s diamond industry is already weak, and demonetisation could push it into critical care (qz) MacroeconomicChina’s Capital-Control Crackdown ‘Particularly Worrying’ for Businesses, Says George Magnus (bloomberg) China Is Pausing on U.S. Deals, Ex-Goldman Rainmaker Says (bloomberg) Southeast Asia Advances in Talks to Dismantle Trade Barriers (bloomberg) India Outflow: Deutsche Bank Says You Ain’t Seen Nothing Yet (bloomberg) Here’s why one in four Indians are worried about losing their homes (qz) India’s startup billionaires are desperate to make the country like protectionist China (qz) MISCFirst Rahul Gandhi, now Vijay Mallya: A group of hackers is going after high-profile Indians on Twitter (qz) South Korean President Park Geun-hye has been impeached (bi)
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| WILLIAM O’NEIL+CO | Institutional Sales | 12655 Beatrice Street | Los Angeles, CA 90066 | 800.545.8940 | |
| William O’Neil + Co. Incorporated is a Registered Investment Advisor with the State of California and certain other states. Employees of William O’Neil + Company and its affiliates may now or in the future have positions in securities mentioned in this communication. Our content should not be relied upon as the sole factor in determining whether to buy, sell, or hold a stock. For important information about reports, our business, and legal notices please go to williamoneil.com/legal. | |
Fintech Ecosystem with Dean Kim – November 10, 2016
Dean Kim, Executive Director, Research, at William O’Neil + Company covers Fintech Ecosystem as a global theme. Dean comes with over 10 years of sell side research experience with UBS, Lehman Brothers and BNP Paribas. His past coverage of the banking sector as well as having been a management consultant with Deloitte Consulting provide unique insights into the Fintech sector.
Broadridge Solidifies as Proxy ServicesLeader
Broadridge Financial Solutions (
), the platform of choice in North
America for proxy services, also provides clearing and settlement services
for banks, broker dealers, global corporate issuers, mutual funds,
and institutional investors. The Company serves North America and 70
other countries, but 96% of its revenue is derived from the U.S. and Canada.
Broadridge generates stable, growing, and diversified revenues
from 98% client retention and more than 90% recurring revenues. With
an expanding portfolio of growth products that is expected to contribute
additional recurring revenues, it is on a higher growth trajectory
and strong steady free cash flow is visible in the near-ter m. We initiate
coverage of Broadridge with an Interest List rating within our Fintech
Ecosystem theme.
SimCorp’s Year of Transition
SimCorp provides fully-integrated front-to-back office investment management software solutions for the global investment management industry. While strong in Europe, SimCorp is delving in to the North American market by transitioning its revenue model from perpetual licenses to subscriptions, increasing recurring revenue. However, as the Company converts to the subscription model, EPS will be under pressure due to falling license revenue from new clients. In FY 2016, EPS is expected to decline 5%. Given the lack of visibility on short term earnings, we see risk in building a position at the current level for a stock that trades at 38x forward PE. In the long term, however, we believe that Simcorp will benefit from long-term industry trends, including more stringent regulation and increasingly complex investment products. We rate SimCorp as Interest List within our Fintech Ecosystem theme.
Wolters Kluwer Shifts Toward Digital
Wolters Kluwer , a global information services provider for the tax, healthcare, legal, and finance industries, has begun shifting its focus toward digital and services, allowing the Company to revive its top-line growth. Its digital segment now contributes 70% of revenue, up from 52% in 2009. To build its capabilities, Wolters Kluwer has been investing 8–10% of its annual revenue to develop new digital products and has already invested almost EUR 2 billion, net, in acquisitions over the past decade. We believe Wolters Kluwer’s profile is compelling for long-term investors seeking alpha. With more than 75% of revenue recurring, a sound balance sheet with an historically low leverage ratio, stable EBITDA margins, and EBITDA/FCF of more than 60%, the stock should benefit from the Company’s strong fundamentals. Wolters Kluwer recently announced a EUR 600 million share buyback from 2016 to 2018, which, coupled with regular dividend distributions, offers an appealing annual yield. Management’s 2016 guidance bodes well, and Q1 2016 figures are moving positively already, with 3% organic growth, improving margins and free cash flow, and a reiteration of FY guidance. We initiate Wolters Kluwer on the Interest List in our Fintech Ecosystem theme.
Turning the Corner for Cap Gemini
Cap Gemini is one of the largest IT services companies in Europe and globally. Cap Gemini’s stock has been consolidating since the Company announced its acquisition of IGATE Corporation in April 2015, although it has outperformed the Stoxx 600 index by almost 17% since then. We believe the IGATE acquisition is a milestone for Cap Gemini’s development, as it will help the Company move toward a global delivery model and capture large accounts. The Company’s offshore mix will shift toward its mid-term goal of 65% due to IGATE’s higher offshore mix, which will also boost operating margins. The acquisition also bolsters Cap Gemini’s cyber-security, cloud, mobile, and digital offerings, a segment that is already growing by double digits. Lastly, the Company’s exposure to the fast growing Financial Services segment is increased as a result of the acquisition. However, we believe that future upside lies in management’s ability to deliver the synergies associated with the IGATE acquisition in 2016, 2017, and beyond. We initiate Cap Gemini on the Interest List in our Fintech Ecosystem theme.
Benefiting from Secular Growth
Temenos Group provides specialized software for the banking and finance industry for more than 2,000 clients across 150 countries. We believe Temenos is positioned to benefit from the secular change underway in the financial services IT space. Pressured by potential disruption from emerging fintech companies, lagging ROE from the cost pressures of old legacy systems, and rapidly changing service demands from customers, banks are being forced to change how they do business, which requires upgrading or overhauling their core and periphery systems. The banking IT market is expected to grow more than 10% per annum in the U.S. and 8% globally, according to IDC. The Company’s software licensing revenue grew 53% year-over-year in Q1 2016 and we expect double-digit growth in total revenue and adjusted EPS for this year and next. Margins are also above industry averages. We initiate coverage of Temenos with a Focus List rating in our Fintech Ecosystem theme.
Equifax Drives Growth fromWorkforce Solutions and VedaAcquisition
Financial institutions, corporations, government, and individuals rely on consumer information to inform credit decisions like loan approvals to housing rentals. Equifax Inc. uses advanced analytics with its 600 million consumer records to provide critical information to businesses that help them optimize processes related to extending credit and the verification of identity, income, and employment. With the exception of 2009, Equifax has delivered consistent strong revenue and EPS growth over the past decade. Equifax’s recent acquisition of Veda Group Limited looks set to boost revenue and EPS growth even more, and the Company is reflecting that confidence by raising the upper limit of its guidance range for full-year 2016. Although its valuation is at a 9% premium versus its peers, we believe the market will continue to appreciate Equifax’s ability to consistently deliver above-average double-digit EPS growth. We initiate Equifax with an Interest List rating within our Fintech Ecosystem theme.
TransUnion Rides Big Data Wave
Financial institutions, corporations, government, and individuals rely on consumer information to inform their credit decisions. TransUnion uses data from 90,000 sources combined with advanced analytics to provide critical information that helps businesses optimize processes related to extending credit and verifying identity. TransUnion IPO’d in Q2 2015 and has since delivered strong double-digit revenue and EPS growth. Future growth for the Company looks strong, driven by rising U.S. consumerism, continued advancement of big data analytics, readily available real-time credit data, and the expansion of international markets. We believe the market will continue to appreciate TransUnion’s ability to consistently deliver above-average double-digit EPS growth. We initiate TransUnion with a Focus List rating within our Fintech Ecosystem theme.
