Bonhoeffer Capital Management Q3 2024 Letter

Dear Partner,

Throughout the last year, we continued replacing slower-growth firms with durable, faster-growing firms in temporarily depressed sectors and identified similar opportunities in new industries. These firms align with our longer-term growth themes of consolidation, forced selling of loans, transaction processing, affordable housing finance and housing construction We have identified and are analyzing opportunities in the following industries: specialized construction, natural resource royalties, distributors, logistics companies, housing, and specialty finance. New investments have a combined expected growth rate (return on equity (RoE) * (1-payout ratio)) plus earnings yield of at least 30 to 40%, a metric of deep value incorporating growth.

As we continue to add faster-growing durable companies to the portfolio, I believe we have the highest- quality businesses in the fund’s history, with a discount that continues to persist as the market fails to realize the improvement in our firms’ positions. I believe high quality is reflected in free cash flow growth with highly recurring revenues (such as in subscription businesses), high free cash flow conversion, and returns on equity that are higher than less-risky alternatives, such as well-underwritten debt which currently has yields in the low-teens.

The Bonhoeffer Fund returned a gain of 11.3% net of fees in the third quarter of 2024. In the same time period, the MSCI World ex-US, a broad-based index, returned 7.7%, and the DFA International Small Cap Value Fund, our closest benchmark, returned 8.5%. As of September 30, 2024, our securities have a weighted average earnings/free cash flow yield of 12.5% and an average EV/EBITDA of 4.6.

The current Bonhoeffer portfolio has projected earnings/free cash flow growth of about 12.5%. The DFA International Small Cap Value Fund had an average earnings yield of 11.6% with 8.2% growth. Bonhoeffer Fund’s and the indexes’ multiples are slightly higher than the previous quarter, primarily due to share price increases.

Bonhoeffer Fund Portfolio Overview

Bonhoeffer’s investment portfolio consists of deep value-oriented special situations, as well as growth- oriented firms that can compound value over time and have been purchased at a reasonable price. In most cases, we are paying no more than mid-single digit multiples of five year forward earning per share (‘EPS’). We are particularly interested in companies in market niches that grow organically and/or through transition or consolidation. We also like to see active capital allocation through opportunistic buybacks, organic growth and synergistic acquisitions. And importantly, we like to see durability, as measured by increasing recurring revenues, high free cash flow conversion and consistent and growing RoEs in our portfolio companies. There were modest changes within the portfolio in the third quarter, which are in line with our low historical turnover rates. We sold some of our slower-growing investments that are not buying back their stock and invested some of our cash into niche growing banks, like FFB Bancorp (OTCQX:FFBB), Northeast Bancorp (NECB), described in the case study below, Citizens Banks, Mission Bank (OTCPK:MSBC) and United Bancorp of Alabama (OTCQX:UBAB).

As of September 30, 2024, our largest country exposures included: United States, United Kingdom, South Korea, Canada, Latin America, and Philippines. The largest industry exposures included: distribution, real estate/infrastructure/finance, telecom/media, and consumer products.

At this point in time, it is appropriate to distinguish between the portion of your portfolio that is newer and is comprised of higher growth equity opportunities versus the legacy portion comprised of slower growth special situation equities that we have been describing in the previous quarterly letters. About 80% of the portfolio is invested in new higher growth equities and 20% is invested in legacy slower growth deep value equities. The remaining lower growth firms in the portfolio have thesis that are playing out such as Millicom (TIGO). The year-to-date performance of the higher growth equites is greater (23% on average) than the legacy slower growth deep value equities (-6% on average).

Conclusion

As always, if you would like to discuss any of the investment frameworks or specific investments in deeper detail, then please do not hesitate to reach out. As we wrap up the fourth quarter, I wish you and your family a blessed Holiday Season and want to thank you for your continued confidence in our work.

Warm Regards,

Keith D. Smith, CFA

INVESTMENT THEMES

Compound Mispricings (14% of Portfolio; Quarterly Performance 2.2%)

Our Korean preferred stocks, Asian real estate and Vistry (OTCPK:BVHMF) all feature characteristics of compound mispricings. The thesis for the closing of the voting, nonvoting, holding company and multiple business valuation gap includes evidence of better governance and liquidity and the decline or sale of the legacy business. We are also looking for corporate actions such as spinoffs, sales, share buybacks, or holding company transactions and overall cash flow growth.

Our Lotte Chilsung Preferred holding is a compound mispricing as it is the preferred stock of the underlying business. The preferred/common discount is currently about 44%. The preferred has the same claim to the underlying asset of Lotte Chilsung as the common, but it receives a higher dividend and does not have a vote. Lotte Chilsung is also a compound mispricing as its primary holdings include beverage and liquor companies and owns an undeveloped plot of land in the Gangnam district of downtown Seoul .

Lotte Chilsung is the largest beverage firm in South Korea, . providing alcoholic beverages as well as Pepsi products in Pakistan, the Philippines and Myanmar. Lotte Chilsung is controlled by the Shin family. In 2017, the Lotte chaebol, a Korean family holding company, was restructured into operating subsidiaries with the cross-holdings of these subsidiaries aggregated into a new holding company, Lotte Corporation. As a result of this restructuring, Lotte Chilsung retained the beverage businesses as well as the land in downtown Seoul. Since the restructuring, Lotte Chilsung has improved investor relations and recently won investor relations awards. Lotte Chilsung holds Gangnum land in downtown Seoul whose estimated value ranges from ₩1.9 trillion to ₩3.8 trillion. Some of the other Lotte subsidiaries require cash to pay down debt. One way to raise cash is to sell the land and distribute the proceeds to pay down the non- Chilsung subsidiary debt. This would result in a dividend to Lotte Chilsung shareholders including the Shin family to pay down the non-Chilsung debt.

Lotte Chilsung currently generates RoEs in the low teens (the mid teens if the real estate is excluded). Based upon Lotte Chilsung’s Value-Up plan, they expected to generate a RoE of 15% by 2028. Management expects to increase sales by 11% annually and its operating income to double by 2028. Based upon Lotte Chilsung’s current stock price, assuming the Seoul land has no value, Lotte Chilsung common is selling for 6x 4-yr forward EPS and the preferred stock is selling for 3x 4-yr forward EPS.

Lotte Chilsung is a good business operationally and is in a good position to grow. The largest drawback at this point is the shrinking domestic market size of consumer products such as beverages. This shrinkage has been more than offset by new products and growth overseas over the past three years with revenue growing by 12% annually. Management expects revenue to grow by 11% per year for the next four years.

Given these factors, earnings are expected to grow by more than 15% over the next four years. This growth rate in combination with its modest forward valuation (3-6x earnings) should lead to expected returns of high teens to low twenties going forward.

Below is our current valuation of Lotte Chilsung:

Click to enlarge

Public Leverage Buyouts (LBOs) (42.3% of Portfolio; Quarterly Performance 12.4%)

Our broadcast TV franchises, leasing, building products distributors and dealerships and service outsourcing, fall into this category. One trend we find particularly compelling in these firms is growth creation through acquisitions, which provides synergies and operational leverage associated with vertical and horizontal consolidation. The increased cash flow from acquisitions and subsequent synergies are used to repay the debt and repurchase stock, and the process is repeated. This strategy’s effectiveness is dependent upon a spread between borrowing, interest rates and the cash returns from the core business and acquisitions. Over the past few months, long-term interest rates have been declining and short-term rates are expected to follow so a large and growing spread is available to firms, like North American Construction (NOA) who have a high return on capital. One way to measure future expected returns are post-synergy cash flow ratios paid for acquisitions. Another way to measure future growth in expected returns is through incremental return on incremental invested capital (RoIIC).

Many of our holdings used the acquisition/buyback model described above. Some of these firms have also used modest leverage to magnify the returns of equity to 20% and above, over the past five to ten years from the acquisition/buyback model. These firms include: Terravest (OTCPK:TRRVF), Asbury Automobile (ABG), Ashtead (OTCPK:ASHTF), Autohellas (OTCPK:AOHLF), Builders First Source (BLDR) and NOA. In addition, many of these firms are buying back stock and the modest current valuations make these buybacks accretive

NOA is an example of an interesting public leveraged buyout (“LBO”). NOA is unique amongst other dirt moving services firms in that it focuses on maximizing equipment utilization across its projects. Dirt moving services businesses provide services to mining and construction services firms around the world. Many of the mining and construction services firms are fragmented and operate in hostile weather locations. These firms can have more pricing power in hostile weather locations compared to the more temperate weather locations, thus providing these services in more hostile environments generate higher gross margins than other dirt moving services firms. One way to calculate RoIIC, is to divide the changes in cashflow from operations (‘CFO’) by the capital expenditure and merger and acquisition investment over a given period of time. Below is the calculation of the RoIIC over the past 10 years.

As can be seen from the RoIIC analysis, NOA’s RoE and RoIIC has increased over the past five to ten years. The recent MacKellar acquisition will further increase NOA’s RoE. Below is an updated 5-yr DCF valuation for NOA:

Click to enlarge

The key assumptions in this DCF include a decline to industry growth rate after the MacKellar acquisition is integrated into NOA in 2025, a steady operating margin after 2025, and a 5% of market cap buyback once NOA’s leverage target is achieved in 2025. The 5% buyback represents 40% of projected income. These assumptions result in an upper teens EPS growth rate over the next five years, an $85 per share value and a 23% IRR.

Distribution (51.6% of Portfolio; Quarterly Performance 13.8%)

Our holdings in car dealerships and branded capital equipment dealerships, building product distributors and electrical component distributors firms all fall into the distribution theme. One of the main key performance indicators for dealerships is velocity, or inventory turns. We own some of the highest-velocity distributors in markets around the world.

In our Q1 2024 letter, our case study was our electronic component distributor, Arrow Electronics (ARW). Arrow’s model is to modestly grow earnings (5-6% per year) and buyback stock at a rate of about 10%. Below is the updated RoIIC model for Arrow:

Click to enlarge

Given the cyclicality of Arrow’s earnings, it is better to look at the longer term average RoIICs and averages. In this case, the 5-yr average FCF/Equity is 20% and 4-year RoIIC is 83%. As to forward estimates of growth and earnings below is the current estimated growth to 2029 with declining growth after 2026. This results in a 5-year growth rate of 20% consistent with the past 5-year growth rate and higher than the 10-year growth rate. The rationale for the higher growth rate than the 10-year growth rate is increases in component demand from AI and internet of things. If the past is repeated into the future, the EPS growth rate will be in the low teens. Below is an updated 5-year DCF for Arrow Electronics:

Click to enlarge

In the increased demand from AI and internet of things case, as shown above, the 2028 EPS will rise to $33 per share. If the past case repeats, the 2028 EPS will rise to $26 per share. With these growth rates, multiples should increase to 15x from the current multiple of about 10x. This results in a value range of about $400/share to $500/share range and an IRR range of 27% to 33%.

Telecom/Transaction Processing (13.7% of Portfolio; Quarterly Performance -8.4%)

The increasing use of transaction processing in the markets of our respective firms, as well as the rollout of fiberoptic and 5G networks is providing growth opportunities within this theme. Given that most of these firms are holding companies and have multiple components of value (including real estate), the timeline for realization may be longer than for more mono-industry-focused firms.

Millicom (TIGO) is one the remaining telecom firms in the portfolio as the company retains favorable market conditions including operating in many two player markets or in markets where the number of participants is getting smaller. With fewer players, telco firms can recover pricing power to offset the increasing cost of network construction and operations. In one of its key markets, Columbia, a large player has entered bankruptcy which will reduce the number of market players. In addition, Millicom is in negotiations to buy the assets of this firm out of bankruptcy.

The sale of Lati, Millicom’s tower spin-off, has been announced with SBA Communications. The stock price has not moved significantly since the tower sale. Millicom continues to implement cost cuts identified by the new CEO and team that was put in place by the new large shareholder, Xavier Niel. Xavier has executed tender offers for Millicom shares (the latest of which was at $25.75 per share) which has increased his stake in Millicom to 40%. Given Mr. Niel’s interest in purchasing 100% of TIGO, I feel the upside is capped, so we have sold part of our position for better opportunities.

Consumer Product (7.0% of Portfolio; Quarterly Performance 4.2%)

Our consumer product retailing, tire, and beverage firms comprise this category. The defensive nature of these firms can lead to better-than-average performance. One theme we have been examining is the development of category-killer retail franchises. These firms have developed local franchises which have higher inventory turns, margins, and sales per square foot than competitors. These factors resulted in great unit economics and high returns on incremental invested capital. They also have some unique characteristics, including specialty niches (such as tire stores or athletic shoes) or offering something the competitors will not do (such as selling hunting supplies).

Real Estate/Construction/Finance (51.6% of Portfolio; Quarterly Performance 11.1%)

The current construction holdings (in US and Europe through Builders First Source and Vistry, respectively) should do well as governments worldwide incentivize infrastructure programs and new construction continues to replenish the housing deficit in the US and the UK. Financing of low-income real estate development as well as growth in small business lending (via small business administration (“SBA”)) and the purchasing of forced sale loans from mergers and acquisition as well as the FDIC are themes driving growth in our bank holdings, FFB Bancorp (OTCQX:FFBB, “FFB”), United Bancorp of Alabama (OTCQX:UBAB) and Northeast Bank (NBN, “NB”). We are looking for banks with sustainable RoEs and EPS growth rates higher than about 20% that are selling for single digit multiples and have decent underwriting. We continue to find banks that meet these criteria.

NEW PORTFOLIO IDEAS

Evaluation of firms using Returns on Incremental Invested Capital

In past letters, we have used a RoIIC analysis to estimate the incremental returns that firms are generating from invested capital. The basis for RoIIC analysis is measuring the return. In this case the changes in working capital adjusted cash flow from operations, divided by the incremental investment, capital expenditures less disposals plus acquisitions less disposals. RoIIC used in combination with RoIC provides an example of how efficient firms are utilizing capital and the trends in that efficiency. I am looking for high teens to low twenties RoIIC’s as investment candidates, especially in situations where the business model is improving or changing from the past. Examples of this analysis is shown above for NOA and Arrow Electronics.

For financial firms, return on incremental equity capital (RoIEC), the net income return associated with an additional dollar of equity investment, is more applicable as equity is the key measure of incremental capital. The return is measured by adjusted net income and the investment by common equity. Since equity is monitored by regulators and most banks keep a buffer of equity above regulatory levels, this is an appropriate way to measure investment. An example of the RoIEC analysis for FFB Bancorp is shown below.

Click to enlarge

The ROIEC for FFBB is about 30% which is driving the RoE to the upper 20% currently and could drive the RoE to 30% over time.

Returns to Our Growth Strategy versus Legacy Deep Value Approach

Since we have been replacing legacy slow growth deep value stocks with reasonably priced faster growing stocks, the performance of the growth stocks has outpaced the legacy deep value stocks. About three years ago, I began to question if deep value was the best way to obtain our target returns of 15% for the fund. As some of the deep value plays did not play out as expected, we replaced these firms with higher growth firms. There are a few legacy deep value plays that continue to play out, such as Millicom, so they will be retained until they play out or other identified stocks provide better opportunities. Currently, the portfolio is 80% faster growth and 20% deep value. Equities in the faster growth portion of the portfolio have outperformed the legacy deep value portfolio over the past year. The average performance of the faster growth group was 23% year to date while the average performance for the deep value group was -6% year to date.

CASE STUDY: NORTHEAST BANK (NBN)

Northeast Bank (“NBN”) is a community bank located in Maine that provides banking service to small and mid-sized businesses (“SMEs”) in Maine, SBA loans nationwide and purchases and services orphan loans. Orphan loans are loans which are sold by either the FTC, as a result of forced sales associated with mergers, or the FDIC, as a result of forced sales from insolvency. NBN operates out of its headquarters in Portland, Maine, an office in Lewiston, Maine, an office in Boston, Massachusetts and seven branch locations across Maine. NBN’s strategy includes purchasing orphan loans as well as originating specialty loans such as PPP loans during COVID or SBA loans currently. NBN also has specialized loan purchase group, National Lending Group (NLG) that purchases and services orphan loans. The orphan loans team has over 30 years of experience in originating and servicing FTC and FDIC sold loans. Much of the NLG’s current management team worked for Capital Crossing Bank that was founded by NBN’s CEO and President Richard Wayne in the late 1980s to purchase orphan loans. Capital Crossing was sold to Lehman Brothers in 2007. As a public company, Capital Crossing generated over 20% annualized returns from the IPO to sale. After the financial crisis, Richard Wayne was able to reassemble the Capital Crossing team as NBN, after he gained control of the company in 2010. Other banks that have grown via buying orphan loans include Beal Bank and First Citizens whose current or peak size is multiples of NBN’s current size illustrating decent growth potential for NBN.

NBN has grown EPS by almost 40% per year over the past five and ten years. This growth is driven by opportunistically buying orphan loans and originating PPP loans during COVID and SBA loans currently. NBN’s lending franchise and loan purchase generates an average loan yield of 8.9% and has organically grown loans by 26% per year over the past five years. The incremental loan yield is estimated by management to be 8.8%. The strong loan growth is comprised of criticized plus watch list loans of 1.4%, non-performing loans (“NPAs”) of 0.9% and a loan loss reserve to NPAs of 118%. NBN finances its loans through CDs and generates a high cost of funds of 4.0%. The resulting net interest margin (‘NIM’) is 4.9% and is sustainable as funding costs will decline with declining loan yields. NBN’s largest shareholder is its management, which holds 15% of its common stock.

NBN was founded in 1872 in Portland, Maine to provide banking services to the Maine region. From 2002 to 2010 (before Mr. Wayne’s arrival), NBN’s book value increased by 4% per year. In 2010, Richard Wayne, joined NBN, contributing his experience in buying orphan loans as the founder and CEO of Capital Crossing Bank. Shortly after Mr. Wayne’s arrival, NBN began purchasing orphan loans. From 2010 to 2023, NBN’s book value increased by 7% per year and EPS grew by 21% per year.

NBN has historically repurchased shares when it could not originate or purchase loans for its hurdle rate of return. From June 2020 to June 2023, NBN repurchased shares at a rate of 6.3% per year. Since June 2023, NBN has found higher return purchased or originated loans and has had to issue equity to fund this growth.

NBN’s platform not only offers a nationwide footprint but also new service optionality including PPP loans and SBA loans. At its current rate of SBA loan production, NBN will be the largest SBA loan producer in the United States at $1.45 billion/year. NBN can sell 80% of these SBA loans (the government guaranteed portion) at a 10-15% premium into the market, thus returning 90% of loan balance to fund further SBA loans. NBN has partnered with an SBA servicer, Newity LLC, to service the loans NBN originates.

A bank productivity measure is the efficiency ratio, non-interest expense divided by total revenues. A good benchmark for efficiency is a 50% efficiency ratio. The average efficiency ratio for commercial banks in Q1 2024 was 59%. NBN’s efficiency ratio is 41% for the trailing 5 quarters ending Q1 2025. Given the number of non-interest bearing services this is a good ratio.

NBN has generated 14% to 31% returns on equity over the past five years. This has been an increase from the 6 to 12% range in the previous five year period. The ability to generate these returns is the result of increased efficiency, originating PPP and SBA loans and buying orphan loans. Below is a RoIIC analysis for NBN:

Click to enlarge

NBN has four levers for earnings growth: 1) successfully bidding and winning orphan loan sales; 2) new services such as sponsor loans, PPP loans and SBA loans; 3) increased efficiency; and 4) distributing excess cash by buying back shares.

NBN has economies of scale in the service markets it currently or historically competed in (PPP and SBA loans). They also have scale based upon the volume of the loans they purchase and originate; so as they grow, they should become more efficient.

Nationwide Orphan Loan and SBA Loan Services Market

NBN competes in the SBA and the FDIC and FTC loan sale markets across the United States. NBN focuses on the smaller end of the orphan and SBA loans markets, where debt funds and larger banks don’t have the overhead structures to effectively compete.

For the year period ending September 30, 2024, the SBA origination market size was $31.1 billion. Over the past five years the market grew by 6% per year. For the current fiscal year, NBN is the fifth largest SBA originator with 4.4% of the market. The top 5 originators have about 30% of the market.

FTC sales are driven by bank merger and acquisition activity. According to the S&P, the number and size of bank acquisitions have declined over the past five years from 253 deals with $30 billion in assets in 2018 to 100 deals with $4 billion in assets in 2023. This is in part due to the more restrictive FTC policies of the Biden administration. With Trump winning the 2024 election, the expectation is that the FTC will allow more mergers and acquisitions than under the Biden administration. The increased level of mergers and acquisitions should result in more orphan loans in overlapping footprints of merging banks.

FDIC sales are the result of bank failures. While the specific timing and magnitude of bank failures are not predictable in advance, over the past 20 years, there were significant failures from 2008 to 2011 and in 2023. The timing of the orphan loans is aperiodic and can happen quickly as a result of bank runs (in 2023) or over time as a result of credit issues (from 2008 to 2011). As a result, FTC forced sales of loans are a more recurring source of orphan loans than bank failure FDIC sale of loans.

Downside Protection

NBN’s risks include both operational leverage and financial leverage. Operational leverage is based upon the fixed vs. variable costs of the operations. There are economies of scale related to some functions such as transaction and loan processing and cross-selling of banking services.

Financial leverage can be measured by the equity/assets and CET1 ratios. NBN has higher equity/assets of 12.0% and CET1 of 13.8% than other niche lenders (like United Bancorp of Alabama, Merchants Bank of Indiana and FFB Bancorp). The historical financial performance for NBN is illustrated below.

Management and Incentives

NBN’s management team has developed a loan purchase and origination engine along with new services and an operationally efficient firm providing financial services.

The base compensation for the management team (top five officers) ranges from $3.2 million per year for the President/CEO to $762,000 per year for the Chief Retail Banking Officer. Over the past year, the top three management folks total compensation was about $8.2 million per year, about 14% of net income per year. The CEO currently hold 733,437 shares and options (worth $73.3 million), which is more than nine times his 2023 salary and bonuses. The CEO’s compensation is structured to include a $655,000 base pay $391,000 in cash bonus compensation and $1.2 million in performance-based stock compensation. The specific metrics for the cash bonus is 70% based upon pre-tax net income targets and 30% based upon qualitative criteria determined by the Board of Directors. No cash bonus will be paid if the pre-tax income is 20% below the pre-tax income target. The performance-based stock bonus is based upon achieving a three-year average 1.75% return on assets target. If the three-year average is less than 70%, then no performance bonus is earned.

Board members have a significant investment in NBN. The board and management owns 1,192,179 shares, about 14.5% of shares outstanding ($119 million). Stock grants provided to management and employees were equal to 1.8% per year of the shares outstanding over the past two years.

Valuation

Click to enlarge

The key to the valuation of NBN is the expected growth rate. The current valuation implies an earnings/FCF increase of .9% in perpetuity using the Graham formula ((8.5 + 2g)). The historical 5-year earnings per share growth has been 40% per year and the 5-year average return on equity of 18%.

A bottom-up analysis based upon NBN’s market growth rates (US orphan loan and SBA loan markets) and historical growth rates results in an estimated 20% projected EPS growth rate. Historically, NBN’s EPS growth rate was 40% per year driven by new service offerings and new customer relationships over ten years. Using a 20% expected growth rate, the resulting current multiple is 41x of earnings, while NBN trades at an earnings multiple of about 10x. If we use a 3% growth rate, the implied multiple is 15x. If we apply 15x earnings to NBN’s current earnings of $9.69, then we arrive at a value of $145 per share, which is a reasonable short-term target. If we use a 20% seven-year growth rate, then we arrive at a value of $400 per share. This results in a five-year IRR of 32%.

Growth Framework

Click to enlarge

Another way to look at growth and the valuation of companies is to estimate the EPS five years into the future and see how much of today’s price incorporates this growth. We are also assuming about 30% of net income will be used for buy-backs, consistent with the average 5-yr trailing buyback levels. Using the same revenue described above results in a 2028 EPS of $19.05, or 4.4x the current price. If we assume a growth bank multiple of 15x, or $345 per share, lower than the five-year-forward valuation above of $400 per share.

Comparables and Benchmarking

Below are the specialty banks firms located in the United States. Most of NBN’s competitors are private banks. I have ranked the banks by expected return as calculated as the sum of the earnings yield plus the earnings growth rate. Compared to the specialty banks, NBN has one of the highest 5-year average RoE and TBV plus dividends growth, fee income/total revenue and the lowest criticized loan amounts. The high CET allows NBN to return much of its generated cash flow to investors via share buy-backs.

Click to enlarge

Risks

The primary risks are:

• slower-than-expected market growth due to slower than expected bank merger and acquisition activity and/or bank failure rates;
• higher-than-expected efficiency ratios; and
• a lack of new investment opportunities (SBA and orphan loans) and/or coupled with higher stock prices making buybacks less accretive.

Potential Upside/Catalyst

The primary catalysts are:

• faster-than-expected SBA and/or orphan loan growth due to higher-than-expected merger and acquisition activity and/or bank failures; and
• higher than expected efficiency ratios due to economies of scale.

Timeline/Investment Horizon

The short-term target is $145 per share, which is almost 45% above today’s stock price. If the continued service growth due to geographic expansion plays out over the next five years (with a resulting 20% earnings per year growth rate), then a value of $373 (midpoint of the two methods described above) could be realized. This is a 30% IRR over the next five years.

Click to enlarge

Original Post

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.