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Morningstar | Stifel Ends 2018 With Healthy Quarter; Management Becoming More Conservative With Capital

Stifel Financial reported record net revenue in 2018 and a healthy fourth quarter, despite turbulent equity markets at the end of the year. The company reported net income to common shareholders of $112 million, or $1.38 per diluted share, on $793 million of net revenue. Net revenue increased 7% sequentially, due primarily to financial advisory fees increasing $35 million, or 47%. Overall revenue lines moved similarly to peers, with strong advisory fees and a little higher equity trading revenue generally offsetting relatively weak underwriting and fixed income trading results. Asset management fees actually increased 5% sequentially, despite client assets decreasing 7% to $270 billion. We don't anticipate making a material change to our $60 fair value estimate for no-moat Stifel.

Possibly due to where we are in the cycle, Stifel is becoming a bit more conservative on capital use. Management is guiding for the 2019 balance sheet to be flat to plus $1 billion compared with 2018. This is despite the company adding another bank charter, which comes with the ability to sweep more of its wealth management client cash onto its own balance sheet instead of to third-party banks. Additionally, the company added between $2 billion to $6 billion to its balance sheet annually over the previous several years, so potentially no growth is a material change. This could signal management seeing less reward compared with risk in putting more loans or securities into the bank. The company also increased its quarterly dividend 25% to $0.15 per share. We agree that a more conservative stance may be warranted because if the end of 2018 is any indication, 2019 could be a turbulent year.