First Things First

First Niagara Bank has  branches across upstate New York, Connecticut, Pennsylvania, and Massachusetts. The bank has some really good signs, and of course some indicators that investors should proceed with caution. Overall, I think that it does have the potential to grow and could add value to an investors portfolio.

Fist Niagara Financial Group (FNFG) has been both acquiring and selling specialty finance companies, insurance brokers, and bank and thrift companies. This trend could help the bank grow into larger markets, which would then allow the bank access to new customers.  New bank customers means new deposits, which would allow the bank to make loans from those deposits and collect the spread between their loan revenue and deposit interest.  FNFG also has a 3.6% dividends, and has been paying  quarterly dividends since 1998.  This dividend was increasing until 2012, until it was cut from 16 cents a share to 8 cents a share.

Although the dividend was cut, 3.6% is nothing to scoff at. We can now look at some other issues as well as some benefits the company may present to an investor.  It’s price to free cash flow is 4.8 and its price to book value is 0.6.  This shows that FNFG can be bought at a discount to its book value and for less than 5 times its free cash flow.  However, its last quarter over quarter  cash flow from operations did decrease from $184 million to $154 million, a 16% decrease.  The company was able to increase overall cash from $424 million to $503 million, a 19% increase, largely due to its net increase in deposits.

Using Guru Focus’ interactive charts, we can see that free cash flow per share has increased dramatically, but that FNFG’s cash flow for dividends is currently at -$142 million.  Could FNFG continue to support its dividend or will it have to cut it again?

I think FNFG is trying to see how well its acquisitions will do before raising its dividends. Above you will see that when we use the FCF instead of EPS in Guru’s DCF calculator, we get a fair value of $27.29 and a margin of safety of 68%.  If FNFG can continue to increase its FCF and cash flow for dividends, this could be a very sound investment in an investor’s portfolio, especially since it is trading at .6 of its book value.

1 Comment

  1. Matthew Hencke says: Reply

    I would personally wait for 5.22 or lower big picture. That might sound extreme but consider that tangible book value = 7.14
    *Net Tangible Assets (2.5B)/Shares Out. (350M)

    FNFG’s cash per share # is low vs its P/S & P/B ratios which isn’t +. And shares out./market cap gives you a # above the ROE % & that should be the other way around. It’s best to be conservative imo with stocks that have debt in excess of mkt cap even if the P/E is below SPX’s. At a min. wait for the gap to fill at 7.83 re 2/25/13 close. FNFG does have a decent dividend & profit margin %. And it is down more than 11% for the year already so that is in your favor (P/B / ROE > .64/5.81 etc). Just keep in mind technically speaking that anyone dollar cost averaging (*buying the close the first day of every trading week since 7/1/14 including the 8/1 close) is currently underwater in their positions. So, sentiment wise you will want to see it back above 8.68 short term since you are taking a more aggressive view on the stock. Good luck!

Leave a Reply