Valens Equity Weekly Insights - 2022 11 01
Citigroup (C) looks to finally be rounding the corner of its transformational reconstruction. Uniform Accounting shows both the company's significant operational improvements, and that the market isn't pricing them in sustainably. That makes Citi a compelling buy.Citi has historically been a worst-in-class performer in terms of Uniform ROE, around
5%-7% in the early 2010s, however, operational improvements have already lifted ROE
towards peer levels, approaching double-digit levels, and there is still more progress
management is making around both back-office operations.
Citi management is aligned to focus on improving profitability, making smart capital allocation decisions, and growing the business, exactly how investors should want them aligned. Also, after prior CEO Corbat's groundwork on cleaning up Citi's portfolio of businesses, new CEO Fraser is set up well, and has the experience to, finish cleaning up Citi's operations.
Management's confidence in the Q3 earnings call about managing through a tough cycle and finding ways to keep pushing its strategy forward highlight that management keeps executing.
C
Citigroup is a financial services holding company whose businesses provide consumers, corporations, governments and institutions with a range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, trade and securities services and wealth management. The company operates via two primary business segments: Global Consumer Banking, which provides banking services to retail customers through retail banking, Citi-branded cards and Citi retail services; and Institutional Clients Group, which includes banking and markets and securities services.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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