Chirag Garg & Salman Khan | NYSE:C | October 12, 2001 What is Citigroup? Ticker symbol C on the Pacific Stock Exchange and NYSE A diversified financial services company encompassing Investment Banking, Commercial Banking and Insurance Both consumer and corporate clients in over 100 Countries/Territories 1 Management & Info Management CEO Sandy Weill CFO Todd Thomson COO Bob Druskin Current Stock Price: $ 42.70 The company is divided into three lines of business. Global Consumer Business Citibank SSB Private Equity/ Private Banking Cards Consumer Financing Insurance 2 Asset Management Similar to Private Equity/ Banking except open to all high net worth clients. Global Corporate Business SSB Global Relationship Banking Emerging Markets Property Insurance E-Business 3 Financial Services Market Comprises of investment banks, commercial banks and insurance companies. Diversified financial services includes two or more of these aspects. Glass-Steagall Act void. Operating above the S&P in the past and present. Will do until S&P picks back up. Credit Card use on the rise; bankruptcy laws set to change. FIN SERVICES S&P 500 CITIGROUP Competitors Primary American Express (NYSE:AXP) $29.99 Morgan Stanley (NYSE:MWD) $51.46 Secondary JP Morgan Chase (NYSE:JPM) $32.49 Credit Suisse First Boston (NYSE:CSR) $34.05 4 Competitive Advantage Diversification Financial Services Market Credit Card Debt/ Increased Use Qualitative Reasoning Emerging Markets Investment High competitor Best in Latin America Credit Card Debt Low Borrowing Rates (2.5%) Wealthy clientele Insurance Investment Banks needed 5 Quantitative Reasoning = Competitive Analysis Citigroup(C) American Express(AXP) Morgan Stanley (MWD) Unit Price 42.7 29 49.26 $ Market Cap 214,800.00 38400 54600 $MM 52-Week High 57.375 61.438 90.49 $ 52-w eek Low 34.51 24.2 35.75 $ % of high 74.4 47.2 54.4 % % over low 124 120 138 % Price/Earnings(ttm) 16.19 18.42 14.2 x Price/Book(mrq) 3.12 3.27 2.8 x Profit Margin(ttm) 11.6 9.2 8.5 % Return on Equity(ttm) 22.7 18.64 20.88 % 6 Dividend Discount Model DIVIDEND DISCOUNT MODEL FOR STABLE GROWTH: Scenario 1 Scenario 2 Damodaran Figures (Past 4 yrs) ROE 17% 17% Modified Dividend Payout Ratio 56.40% 70.59% Growth till perpetuity 5.00% 5.00% Current Earnings ($BN) $13.99 $13.99 Risk Free Rate 5.10% 5.10% Risk Premium 4.00% 4.00% Beta 1.00 1.00 Cost of Equity 9.10% 9.10% Valuation Value of Equity ($BN) $202.11 $252.90 # of Shares (BN) 5.03 5.03 Intrinsic Value per share $40.18 $50.28 Actual Value per share $42.70 $42.70 Judah Kraushaar Top analyst at Merrill Lynch says: Exceptional Diversification Undervalued Not yet living up to forecasted P/E 3Q trough and yet still 18% ROE Stock could double within a year (Taken on October 3 2001) 7 P/E Spread Model P/E Spread 2000 2001 2002 2003 Earnings 13.52 15.41 17.57 20.03 Shares Outstanding 5.02 5.02 5.02 EPS 3.07 3.50 3.99 at 14x 42.98 49.00 55.86 8.
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