Friday, June 25, 2010

"Ackman Confirms Why Citigroup Could Still Double" (C)

This is an older piece but worth repeating. The stock closed yesterday at $3.78, down 11 cents.
From 24/7 Wall Street:
It was during the most recent meltdown that we gave a list of companies where the stocks could still double, and Citigroup Inc. ( C) was one of them.  Bill Ackman’s Pershing Square disclosed on  June 8. that it held 146.5 million Citi shares, equal to about 9% of Pershing’s capital.  While Ackman gives no formal price target, this continues to show why Citi could be worth far more down the road.

Ackman outlines Citi’s two faces, one of Citicorp and one of Citi Holdings.  The  woes affecting financial stocks is what Ackman believes is “a compelling opportunity to purchase Citi shares at a meaningful discount to their fair value.”

Citicorp is the core of the company going forward with $1.5 trillion of assets including regional consumer banking, securities and banking, and transaction services.  The core business has $21 billion in operating deferred tax assets AND $24 billion to $30 billion of excess capital supporting the wind down of Citi Holdings.  Citi Holdings is effectively liquidating the  portfolio of several operating businesses and legacy asset pools that will be wound down or sold in the coming years.

Ackman noted that at $3.64 Citi trades below tangible book value and trades at five (or so) times management’s earnings guidance.  After scraping out the rest, Ackman believes an investor today is paying on 3X or 4X times real earnings for the core Citicorp.   With a current tier 1 common ratio of 9.1%, Ackman believes that Citi is better insulated from potential late-cycle credit issues along with substantially less home equity and commercial real estate exposure than its domestic peers.
Ackman concludes, “In our view, there is a much greater degree of uncertainty associated with our investment in Citigroup than for Kraft, or for a number of our other holdings. That said, we believe the current stock price, capital structure, and hidden assets provide a sufficient margin of safety, in light of the large potential for reward from this investment.”
As far as our own screening back on May 19, 2010...MORE
We covered some of Mr. Ackman's thinking May 27 and June 10:
Pershing Square's Ackman Buys 150 Million Shares Of Citigroup and a "Big Options Bet" (C) 
Why Pershing Square's Bill Ackman Bought 146.5 Million Citigroup Shares (C)