MYS - Mystate

[mark100]

Mystate appears to be under the radar of most investors. They listed through a reverse takeover of Tasmanian Perpetual last year so now the combined entity consists of the funds management operations of Tasmanian Perpetual and the banking operations of Mystate, with earnings heavily weighted to the banking operations.

For FY10 they have reported NPAT of $17.3m which is ahead of forecasts however this is heavily affected by one-off merger costs etc and the fact that the profits for Tasmanian Perpetual are only included in the results from Sept onwards. The ‘normalised’ NPAT is around 22.5m (EPS 33c) on my estimates, which assumes a full 12 months contribution from Tasmanian perpetual and strips out the one-off gains and costs associated with the merger.

When compared to other banks (major or regional) MYS appears very good value, mainly because it’s only a new listing and not well know I think. Also all account holders with Mystate got 387 shares prior to the listing and ever since the listing there has been a stready drip feeding of 387 parcels on to the market. Some days these parcels make up to 50% of all shares sold for the day.

Using the normalised figures MYS is trading on a FY10 PE of around 9 and yield of 7.5%. Over the next 2 years they expect to achieve cost savings as a result of the merger. Combined with modest organic growth its likely MYS could report NPAT for FY11 in the order of $24m. This would put them on a PE of under 8.5 and potential yield of 9.5% based on their stated payout policy. Also at current prices MYS is only trading around 1x book value. This is too cheap for a regional bank in my view.

They grew loans by 14% over the year and deposits by 20%. The loan book is 90% covered by deposits reducing the reliance on wholesale funding. As a result of this MYS net interest margin is around 3%, well above the majors which are closer to 2%.

MYS would be a tasty buy for another regional looking to bulk up and increase its deposit base.

I have been accumulating at $3 to $3.15 for the past few months

[mark100]

A director has purchased $390k of stock at $3.16. But the market isn't interested since it went ex div. Just a drip feed of 387 shares continuing.

MYS is the cheapest 'bank' on the ASX in my view and they aren't reliant on overseas funding. Based on my FY11 estimates (that assume very modest growth but aren't affected by FY10's merger costs) MYS is potentially trading on:

Price to Book Value - 1.06
PE - 8.5x
Yield - 9.4% FF (based on mid point of stated payout ratio)
ROE - 12.2%

Anyone else follow? I intend to hold for the medium to longer term

[POSSUM THE CAT]

Mark 100 tell us a bit more please compare with ROK and WBB. Plus other smaller banks

[mark100]

Will do Possum in the next day or so.

Just quickly though, I do hold a few Wide Bay (first share I ever owned) but regard them as quite fully priced (14.5x FY10) although their ROE is better than MYS. The ROK is cheap but their retail deposit base is eroding (the balance sheet figure quotes is misleading as they are counting NCDs as deposits but they are very different to retail deposits, the notes reveal the detail). I actually think the ROK will 'need' to be taken over at some stage unless they can arrest this trend.

[h2so4]

Mark MYS looks very cheap. The only financial I have ever held was AFG. It was a good lesson to learn for my first ever stock pick.

No longer hold AFG. Looking to buy MYS.

[mark100]

Here are a few ratios comparing MYS with WBB, ROK, BOQ and BEN. MYS has the lowest historical and forward PE, the highest Net Interest Margin, the second highest ROE, the highest loan and deposit growth during FY10, the highest ratio of deposits to loans and the highest liquidity ratio.

FY10 PE
MYS 9.5
BEN 11.5
BOQ 11.5
ROK 12.7
WBB 14.8

FY11 PE estimated
MYS 8.7 (assumes 3% organic growth, $1.5m pre tax cost synergies as per guidance and no one-off merger costs from FY10)
BOQ 9.7
BEN 10.5
ROK 11
WBB 13.4

FY10 ROE
WBB 14.2%
MYS 11.0% (adj for one-off merger costs)
BOQ 9.6%
ROK 8.6%
BEN 7.5%

Net Interest Margin (calculated as Net Interest / Average Assets)
MYS 3.167%
WBB 2.103%
BEN 1.72%
BOQ 1.58%
ROK 1.52%

Price to Book Value
BEN 0.79
BOQ 1.03
MYS 1.06
ROK 1.13
WBB 2.0

Total Liquidity Ratio
MYS 14.5%
ROK 13.1%
WBB 12.3%
BOQ 11.5%
BEN 11.2%

Cost to Income Ratio
WBB 54%
BOQ 62%
MYS 65% (should improve with cost synergies from merger)
BEN 70% (high due to high impairments)
ROK 76% (small sub-scale operation)

Retail Deposits to Loan coverage
MYS 92%
BEN 78%
WBB 58%
BOQ 55%
ROK 51%

FY10 Deposit Growth
MYS 20%
BEN 18%
WBB 5%
BOQ 4%
ROK -12%

FY10 Loan Growth
MYS 14%
BEN 12%
WBB 5%
BOQ 5%
ROK -7%

[POSSUM THE CAT]

Mark 100 thanks will add to my watch list

[mark100]

Tassie finance tidger healthy after pruning Christopher Webb
September 8, 2010

It's not well known in this neck of the woods but in Tasmania the listed MyState has very good brand awareness.

It listed last September when the venerable, sleepy old Tasmanian Perpetual Trustees merged with MyState Financial Credit Union of Tasmania.

A credit union veteran, John Gilbert, was brought in to run the new show and, over the past nine months, he has been busy cutting costs.

Putting the two businesses together has not come cheap, with $5 million or so booked as one-off expenses in the June year. Even so, tax-paid earnings weighed in at $17.3 million, which included 10 months' results from the trustee arm and a full-year contribution from MyState. Retail deposits and the loan book rose by 21 per cent and 14 per cent respectively.

The MyState arm is the earnings powerhouse of the business, with $1.7 billion of loans under management, $1.6 billion of deposits, and a relatively high 90 per cent-plus of its loan book funded from deposits. The trustee arm is a more ordinary performer, which maybe is not surprising seeing it is, well, a trustee company. It has about $930 million of funds under management, while the two divisions have about $740 million in funds under advice or administration.

John Gilbert has been cautious in his forecasts of what lies ahead. He said recently that the latest year's underlying result demonstrated the group was poised to deliver ''uplift'' in coming years. He also suggested there was considerable potential for growth in Tasmania and ''in time, in broader markets''.

Bell Potter Securities perhaps does most of the business in the stock, and the firm thinks MyState is well positioned for growth in the current year.

''There is a compelling case for confidence in such growth given that MyState should reap the benefits of both redundancies undertaken during the 2010 financial year and the high growth in its loan book that has been achieved,'' the broker said.

It forecast that adjusted 2011 earnings should improve 12 per cent to $24 million, which means the stock is on an earnings multiple of slightly less than nine times earnings.

Meanwhile, one good sign was that two MyState directors have recently increased their stakes.

Miles Hampton spent $391,747 buying 123,688 shares at $3.17 apiece.

On Monday, Colin Hollingsworth bought 8000 shares at $3.08 a share.

The market values MyState at $213 million.

[corky]

Mark

I notice WAM added MYS as a research driven pick (as against a market driven) in their latest newsletter :-) Agree they look good value - I picked some up for the SMSF at 3.07. Thanks for the lead.

[mark100]

A solid result from MYS has pushed it slightly up to a new high. NPAT of $11.6m was up 40% but in reality the increase was less than that as this was the first half of reported profits that weren't affected by the merger costs.

MYS have forecast a full year result of $22m however I expect a better result than that and I note last year they easily beat their forecast. I'm working on NPAT for the FY coming in at a little over $23m. This would have them trading on around 11x NPAT and yielding around 7.2% FF.

As a comparison with another similar sized regional WBB which has a longer track record as a listed company:

H1 2011 NPAT
WBB $11.6m
MYS $11.6m

Net Interest Margin annualised
WBB 2.16%
MYS 3.18%

Loan book growth
WBB 0.8%
MYS 3.6%

Net Assets
WBB $191m
MYS $202m

Market Cap
WBB $373m
MYS $260m

So despite MYS reporting identical profit to WBB (and forecasting a similar FY result), growing the loan book faster and reporting a much higher NIM due to their high amount of deposits, WBB's market cap is 45% higher than MYS!

Either WBB is expensive or MYS is cheap. Probably somewhere in the middle I think.

[mark100]

MECU has emerged with a 5% stake in MYS. MECU is a Victorian based credit union of a similar size to MYS. Not sure what their plan is, they don't have the balance sheet size needed to bid for MYS although they would be a nice merger partner.

[corky]

Be good if something moved the price Mark - chart looks like the share is suspended....

[mark100]

I sold around half my holding in the days after they went ex div mainly because of their tendancy to go nowhere when news is thin. But I plan to buy those shares back either when they are cheaper or something gets the price moving. I found this article today on the Banking Day website.


mecu buys more of MyState
20 May 2011 7:23am
Melbourne credit union mecu has continued to accumulate shares in MyState Limited and this week reached the five per cent mark, resulting in a disclosure by the buyer to the ASX.

MyState’s annual report in September 2010 provided the first disclosure of mecu’s holding, which at the time was 1.6 per cent.

Over the last year, mecu has invested A$11.9 million in a stake that is now worth $12.6 million. mecu had core capital of $251 million at March 2011.

The credit union has bought about one third of all MyState shares traded on the ASX in the last year.

Phylip Doughty, chief executive of mecu, said yesterday: “We think this [trustee] business in Tasmania that MyState has got is a strong business.

“We expect them to reap strong gains from the merger of MyState, the credit union, and the trustee business.

“We were confident they can produce returns better than if we invested the money in liquid assets.

“We had a meeting with them and told them of our intentions. We’ve been very happy. They’ve been paying high dividends, fully franked dividends. We’ve seen a fairly consistent gain in the share price, not that we are trading.”

Shares in MyState are yielding more than eight per cent, based on recent dividends, and the current share price of $3.75.

MyState was formed from the merger of Tasmanian Perpetual Trustee with MyState Financial, itself a merger of the Island State and Connect credit unions, which together rolled up virtually all the credit unions then trading on the island.

Asked if the object of the investment was to stake out a position with a view to a future merger or to frustrate the merger plans of any other investor, Doughty said, “That would be an effect of our holding.

“We made the investment because we believe they had a good investment in a similar market.”

[mark100]

Pretty good result from Mystate. At first I thought the result was a touch low but it included a bit over $1m of remaining one-offs associated with the Tasmanian Perpetual merger (redundancies, loss on property sale etc). So adding that back it matched my estimate of a touch over $23m underlying NPAT. Final div was also better than expected at 15c FF.

The big news is the ROK takeover. This is a good plan in my view. ROK was sub scale following the GFC and was having trouble raising new funding at a competitive price. MYS come with a balance sheet loaded with deposits and will gain some geographic expansion. Given ROK was sub scale its cost to income ratio was very high. Pre-tax synergies are estimated to equal the whole of ROK's pretax profit for 2011, an illustration of their high cost base.

However I would now suggest both MYS and ROK are in play and someone might come and spoil the party. More likely an alternative bidder for ROK I reckon. I bought some ROK yesterday at $2.50 just in case

[mark100]

I should also mention WBB. It is one of the few remaining listed regional banks. The founder and MD is in his late 60s and owns around 5-6%. Does he look to sell the company when he retires or just get a replacement MD and hang on to his shares?