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The BMW Method
Citigroup (C)

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By StuyvesantGrad70
January 24, 2005

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Citigroup:

Mklein's BMW method 16 year chart as of Jan 22, 2005:
http://invest.kleinnet.com/bmw1/stats16/C.html
Average CAGR 27.4%, Current CAGR 22.4%, Return factor 1.89, RMS �1.98, price $47.93
Looks like an excellent time to buy the stock according to the chart.

Company description:
300,000 employees manage 200 million customer accounts in more than 100 countries. Involved in consumer banking and credit, corporate and investment banking, insurance, securities brokerage, and asset management. Includes Citibank, CitiFinancial, Primerica, Smith Barney, Banamex, Travelers Life and Annuity, Diner's Club International and Citi Credit Cards.

Valueline Report:
http://www.valueline.com/dow30/f9055.pdf
Earnings per share
1999 $2.15
2000 $2.62
2001 $2.76
2002 $3.00
2003 $3.42
2004 $4.05 estimate adjusted for one time charges, it's actually $4.07
2005 $4.40 estimate

Average Annual P/E ratio
1999 16.0
2000 18.3
2001 17.7
2002 13.3
2003 12.3
Current P/E $47.93/$4.07 adjusted for one time events =11.78
The stock price is back to about where it was in 2000, but the earnings have gone up considerably, so the P/E is down.

I like to look at the earnings yield which is the inverse of the P/E and then I add the dividend yield:
Earnings yield $4.07/$47.93 = 8.49%
plus dividend yield of $1.76/$47.93 = 3.67%
so total yield is 8.49% plus 3.67% = 12.16%

Upgrades:
http://quotes.fool.com/custom/fool/html-news.asp?guid={43B329AE-8D14-49D0-BFA0-208E966B8F5A}&currticker=c&symbols=c&nx=&bx=
Merill Lynch added Citigroup to its "Focus 1 List". Analyst Guy Moszkowsi said he found shares of the financial-services giant "very attractively valued" at multiples of 11.3 times his 2005 earnings per share estimate and 10.3 times his 2006 forecast.

http://cbs.marketwatch.com/tools/quotes/snapshot.asp?symb=c&sid=117685&siteid=mktw
A.G.Edwards 1/06/2005: Reiterates buy recommendation, names company top pick for '05, lifts price objective to $58 from $54

2004 Earnings:
http://www.citigroup.com/citigroup/fin/data/qer044.pdf
Net income: 2004 $17B or $3.26 per share down 5% from 2003.
However this includes one time items: $4.95B or $0.95 per share charge for WorldCom class action settlement, increased litigation reserves and $756M gain on sale of 20% stake in Samba Financial Group.
Earnings without these items would have been $21.2B or $4.07 per share, up 19% from 2003.

Q4 2004 Highlights:

Increased consumer volumes:
North America: average loans up 20% in retail banking and 13% in consumer finance.
International: retail banking deposits up 19%, 1 million new credit card accounts.
Smith Barney net client inflows strongest in 11 quarters, at $10B. Private bank assets under management up 24%. Assets under custody rose 23%.

Total international revenues increased 14% and net income increased 25%. Exceptional performance in Asia: revenue growth of 36% and net income growth of 63%.

Dividend increase:
10% increase to $0.44 a quarter, the 20th consecutive year of dividend increases.
Payable on Feb 25th to stockholders of record on Feb 7th.

Investor Presentation Dec 8, 2004 (134 page pdf file):
http://www.citigroup.com/citigroup/fin/data/p041208.pdf

Global consumer group (includes credit cards, retail banking, consumer finance. Does not include insurance and brokerage) is 52% of total Citigroup net income:

Net income growth of global consumer group is 20% CAGR
$3.9B in 1998 to $9.5B in 2003.

Increasing return on assets:
Credit Cards: 2001 2.15%, 2002 2.40%, 2003 2.57%, 9 months 2004 2.56%
Consumer Finance: 2001 2.09%, 2002 2.38%, 2003 1.89%, 9 months 2004 2.17%
Retail Banking: 2001 1.60%, 2002 1.54%, 2003 1.76%, 9 months 2004 1.82%
Global consumer group: 2001 1.80%, 2002 1.93%, 2003 1.95%, 9 months 2004 2.13%

North America credit cards
28% CAGR from $0.9B in 1998 to $3.1B in 2003
North America credit card market shares for 2003:
Citigroup 19.2%, JP Morgan Chase 16.6%, MBNA 11.1%, Bank of America 6.9%, Discover 6.2%, Capital One 6.0%, HSBC 4.7%, American Express 4.6%, General Electric 2.5%, Providian 2.1%

International credit cards
28% CAGR from $0.1B in 1998 to $0.5B in 2003

Building the Brand through customer contact and service:
17,000 direct sales agents and telephone sales agents.
38 million calls to call centers annually.
50 million direct mail prospects annually.
150 million account statements annually.
15 million credit cards in force.

North America Consumer Finance:
15% CAGR from $0.7B in 1998 to $1.4B in 2003
Industry return on assets 1.62%. Citigroup return on assets 2.17%

North American Retail Banking:
19% net income CAGR from $1.0B in 1998 to $2.5B in 2003
29% commercial business, 24% home finance, 20% Primerica, 19% retail, 8% student finance.
Market share: New York/New Jersey/Connecticut 13.1%, California/Nevada 5.9%, Illinois 1.9%, Mid Atlantic 3.6%, Florida 1.4%, Texas 0.9%

Largest consumer bank in Asia. 12 countries, 16 million accounts.

Conclusion:
The stock price is a good BMW Method candidate now; the dividend yield at 3.6% is nice. The company has made great progress since 2000, yet the stock price is about the same as it was in 2000. The company is very well diversified, a market leader, an international company with a strong brand. The analysts have noticed what is happening and are now upgrading the stock. Yes it could have been bought cheaper during the WorldCom fiasco, but the earnings are improving, and it's still a good buy, IMHO. Comments please!


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