Monday, December 21, 2015

7th AIM student equity update: (by Brendan Duffy). Wintrust Financial (WTFC): Is this a Chicago Bull in a Bearish Market?

WTFC (Wintrust Financial Corporation):  - Is Wintrust an Emerging Banking Bull in the Chicago Market?
By: Brendan Duffy, Student at Marquette University

Image result for wintrust logo

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

• WTFC - a regional bank serving greeter Chicago and southern Wisconsin - istock that remains in play as they returned over +3% quarter to date relative to the benchmark (-4%)

• Wintrust opened their newly renovated bank headquarters in the LaSalle Building on November 10, 2015

• The WTFC common stock has been rather volatile in the fourth quarter almost reaching its 52 week high on November 6 and then coming close to its 52 week low on December 11 and then climbing its way back to nearly $50 recently. I suspect it will relatively stagnant for the remainder of the quarter - and then resume its growth path in 2016.

• Activist investor Hermes Investment Management Ltd. increased its position by $18M as of September 30, 2015 - a positive sign.

WTFC (Wintrust Financial Corporation):
Wintrust remains in play as a solid Midest regional bank. They gained status by opening a new building in the heart of Chicago’s financial district. WTFC has long been wanting to be seen as a 'player' in the Chicago financial scene, but a new building could not be done unless they locked down key real estate in the financial district. 

Wintrust will use the new center for their commercial banking segment as well as Wintrust Wealth Management Group. The Grand Banking Hall will be used for company functions as well as a place for their “community room” initiatives - where they offer space for local philanthropic events and organizations in need.

As of September 30, 2015, Hermes Investment management substantially increased their position in Wintrust. Hermes is ranked as 'high' in the activist category in FactSet. Their 2.1% position in WTFC in their Hermes Global Small Cap Equity Fund represents the seventh largest holding in the student-manged portfolio.

Operationally, Wintrust has been doing well. Net interest income is up 5% from last year on a trailing twelve month basis - operating income is also up 4% on a trailing twelve month basis. As of July 2015, Wintrust closed on three of its 2015 acquisitions and they added assets of over $920M, loans of $445M and deposits of $802M. The synergies from these acquisitions resulted in $14M in cost savings and can be a driver of future growth.

What has the stock done lately?
The stock has been relatively volatile this quarter coming closest to its 52 week low on December 18 at $49 (its 52 week low is $41). The stock has gained back a few basis points since then rising to its current price. It was also close to it’s 52 week high as of November 6 at $53.60, above the intrinsic value of $52 that was established in 2013.

Past Year Performance: Wintrust was up 5% in 2014 compared to the benchmark at 4% and has been rather volatile as of late. Back in December 2014, the stock was trading at its 52 week low of $41.40 and has been on a wild rodeo ride since.

 Source: FactSet

My Takeaway:
The original Wintrust investment thesis in 2013 resulted in an intrinsic value of $52 and I believe the company is close to reaching this level and should then be sold if it rises much above that level. The company was pitched on the investment thesis of gaining market share through acquisitions, rising interest rates, and an improving national economy. I believe two of the three of these are still in play (acquisitions and interest rates) and that the intrinsic value will be reached in the next quarter. They have performed well despite a bear market and continue their rapid acquisition approach. I believe they will become a larger player in the Chicago and Midwest banking scene, but at a price of $55 or higher it should be sold as it will be fairly priced.

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