Rating Update: Stock Rating B-Positive (9/27/19)-Civista Bancshares Inc (CIVB).

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BUSINESS

Civista Bancshares, Inc. operates as the financial holding company for Civista Bank that engages in the community banking business in Ohio. The company accepts noninterest-bearing and interest-bearing demand deposits, and certificates of deposit. It offers commercial, commercial and residential real estate mortgage, real estate construction, and consumer loans. The company also provides trust and third party insurance services. It operates branch banking offices in Sandusky, Norwalk, Berlin Heights, Huron, Port Clinton, Castalia, New Washington, Shelby, Willard, Greenwich, Plymouth, Shiloh, Akron, Dublin, Plain City, Russells Point, Urbana, West Liberty, Quincy, and Dayton communities of Ohio, as well as loan production offices in Mayfield Heights, and Westlake, Ohio. The company was formerly known as First Citizens Banc Corp and changed its name to Civista Bancshares, Inc. in May 2015.
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INVESTMENT RATING

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With future capital returns forecasted to be in line with the cost of capital, CIVB is expected to be Value Creation neutral.

Civista Bancshares has a current Value Trend Rating of B (Positive).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing highly consistent signals. Civista Bancshares has a slightly positive Appreciation Score of 62 and a slightly positive Power Rating of 64, leading to the Positive Value Trend Rating.

Civista Bancshares’ stock is selling well below targeted value. The current stock price of $21.79 compares to targeted value 12 months forward of $33.
This moderately high appreciation potential results in an appreciation score of 62 (only 38% of the universe has greater appreciation potential.)
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Civista Bancshares has a Power Rating of 64. (This slightly positive Power Rating indicates that CIVB’s chances of achieving attractive investment performance over the near to intermediate term are only average.)
Contributing to this slightly positive Power Rating: recent price action has been slightly favorable. Offsetting factors are earnings estimate behavior for CIVB has been slightly negative recently; and is in a slightly weakened position current.

INVESTMENT PROFILE

CIVB’s financial strength is exceptional. Financial strength rating is 96.
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Relative to the S&P 500 Composite, Civista Bancshares Inc has moderate Value characteristics; its appeal is likely to be to Income-oriented investors; the perception is that CIVB is lower risk. Low financial leverage is a positive for CIVB. Relative weaknesses include: low forecasted profitability, and low historical profitability. CIVB’s valuation is low: moderate dividend yield, low P/E ratio, and low price/book ratio. CIVB has unusually low market capitalization.

CURRENT SIGNALS

Civista Bancshares’ current operations are eroding. Return on equity is falling, reflecting: falling asset utilization; declining pretax margin; and falling leverage.

Civista Bancshares’ current technical position is very strong. The stock price is in a 4.7 month up move. The stock has appreciated 36.3% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.

ALERTS

Positive development: significant quarterly sales acceleration occurred. Negative development: significant quarterly earnings deceleration occurred.
The stock is currently rated B.
Civista Bancshares Inc (NASDAQ: CIVB) stock suffered a major decline of -12.3% on 9/27/19. The shares closed at $0.64. However, trading volume in this decline was below average at 79% of normal. The stock has been strong relative to the market over the last nine months and is unchanged during the last week.

CASH FLOW

In 2018, Civista Bancshares generated a slight increase in cash of +$2.26 million (+6%). Sources of cash were slightly larger than uses. Cash generated from 2018 EBITDA totalled +$41.14 million. Non-operating uses consumed -$22.48 million (-55% of EBITDA). Cash taxes consumed -$2.64 million (-6% of EBITDA). Re-investment in the business amounted to -$236.20 million (-574% of EBITDA). On a net basis, debt investors contributed +$122.14 million (+297% of EBITDA) while equity investors contributed +$100.30 million (+244% of EBITDA).
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Civista Bancshares’ Non-operating Income, %EBITDA has enjoyed a very strong overall uptrend over the period. This improvement was accompanied by a similar trend for the Civista Bancshares Inc Peer Group. (Since 2016 Non-operating Income, %EBITDA has experienced a very sharp decline.) In most years, Civista Bancshares was in the lower quartile and third quartile. Currently, Civista Bancshares is lower quartile at -55% of EBITDA (-$22.48 million).

Civista Bancshares’ Cash Taxes, %EBITDA experienced a strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Civista Bancshares Inc Peer Group. In most years, Civista Bancshares was in the top quartile. Currently, Civista Bancshares is upper quartile at -6% of EBITDA (-$2.64 million).

Civista Bancshares’ Business Re-investment, %EBITDA has suffered a very strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Civista Bancshares Inc Peer Group. (Since 2016 Business Re-investment, %EBITDA has accelerated very sharply.) In most years, Civista Bancshares was in the third quartile and top quartile. Currently, Civista Bancshares is lower quartile at -574% of EBITDA (-$236.20 million).

Civista Bancshares’ Debt Investors, %EBITDA has experienced a very strong overall uptrend over the period. This improvement was accompanied by a similar trend for the Civista Bancshares Inc Peer Group. (Since 2016 Debt Investors, %EBITDA has accelerated very sharply.) In most years, Civista Bancshares was in the third quartile and second quartile. Currently, Civista Bancshares is upper quartile at +297% of EBITDA (+$122.14 million).

Civista Bancshares’ Equity Investors, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Civista Bancshares Inc Peer Group. (Since 2016 Equity Investors, %EBITDA has accelerated very sharply.) In most years, Civista Bancshares was in the second quartile and top quartile. Currently, Civista Bancshares is upper quartile at +244% of EBITDA (+$100.30 million).

Civista Bancshares’ Change in Cash, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Civista Bancshares Inc Peer Group. In most years, Civista Bancshares was in the second quartile and lower quartile. Currently, Civista Bancshares is below median at +5% of EBITDA (+$2.26 million).
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Civista Bancshares’ Cash, %Revenue has suffered a very strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Civista Bancshares Inc Peer Group. (Since 2010 Cash, %Revenue has acccelerated.) In most years, Civista Bancshares was in the third quartile and second quartile. Currently, Civista Bancshares is below median at +47%.

PROFITABILITY

Civista Bancshares’ return on equity has improved very significantly since 2009 decelerating very sharply after the 2011 level.
This very significant improvement was due to very strong positive trend in pretax operating return and little change in non-operating factors.
The productivity of Civista Bancshares’ assets declined over the full period 2009-2019: asset turnover has experienced a minor downtrend.
More than offsetting this trend, however, pretax margin enjoyed a very strong overall uptrend that decelerated very sharply from the 2011 level.
Non-operating factors (income taxes and financial leverage) had little influence on return on equity.
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Civista Bancshares’ return on equity is lower quartile (7.1%) for the four quarters ended June, 2019.
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Operating performance (pretax return on assets) is lower quartile (1.2%) reflecting asset turnover that is at median (0.05X) and lower quartile pretax margin (24.5%).
Tax “keep” rate (income tax management) is at the upper quartile (82.8%) resulting in after tax return on assets that is lower quartile.
Financial leverage (leverage) is at the lower quartile (7.00X).

GROWTH RATES

There are no significant differences between Civista Bancshares’ longer term growth and growth in recent years.
Civista Bancshares’ historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth.

Annual revenue growth has been -1.7% per year.

Total asset growth has been 0.2% per year.

Annual E.P.S. growth has been 30.1% per year.

Equity growth has been 7.9% per year.
No consensus growth rate forecast is available for Civista Bancshares.
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Relative to the Civista Bancshares Inc Peer Group, Civista Bancshares’ historical growth measures are erratic. E.P.S. growth (30.1%) has been upper quartile. Equity growth (7.9%) has been slightly above median. Revenue growth (-1.7%) has been lower quartile. Total asset growth (0.2%) has been lower quartile.

Consensus growth forecast is unavailable.
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PRICE HISTORY

Over the full time period, Civista Bancshares’ stock price performance has been variable and in line with the market. Between November, 2008 and September, 2019, Civista Bancshares’ stock price rose +223%; relative to the market, this was a -2% loss. Significant price moves during the period: 1) February, 2016 – July, 2018: +152%; 2) December, 2012 – December, 2015: +144%; and 3) September, 2011 – April, 2012: +107%.
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TOTAL INVESTMENT RETURNS

Current annual total return performance of -8.7% is substantially below median relative to the S&P 500 Composite.
In addition to being substantially below median relative to S&P 500 Composite, current annual total return performance through July, 2019 of -8.7% is above median relative to Civista Bancshares Inc Peer Group.

Current 5-year total return performance of 22.0% is upper quartile relative to the S&P 500 Composite.
Through July, 2019, with upper quartile current 5-year total return of 22.0% relative to S&P 500 Composite, Civista Bancshares’ total return performance is upper quartile relative to Civista Bancshares Inc Peer Group.
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VALUATION BENCHMARKS

Relative to S&P 500 Composite, CIVB’s overall valuation is low. The highest factor, the ratio of enterprise value/revenue, is above median. Ratio of enterprise value/earnings before interest and taxes is below median. Price/earnings ratio is below median. Price/equity ratio is lower quartile. The lowest factor, the ratio of enterprise value/assets, is lower quartile.
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Civista Bancshares has a large value gap compared to the median. For CIVB to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 4.65X to 4.06X. If CIVB’s ratio of enterprise value/revenue were to fall to 4.06X, its stock price would be lower by $-4 to $18.
For CIVB to achieve upper quartile valuation relative to the Civista Bancshares Inc Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 4.65X to 4.86X. If CIVB’s ratio of enterprise value/revenue were to rise to 4.86X, its stock price would increase by $1 from the current level of $22.

VALUE TARGETS

With future capital returns forecasted to be in line with the cost of capital, CIVB is expected to be Value Creation neutral.
Civista Bancshares’ current Price Target of $32 represents a +48% change from the current price of $21.79.
This moderately high appreciation potential results in an appreciation score of 62 (only 38% of the universe has greater appreciation potential.)
Reinforcing this moderately high Appreciation Score of 62, the moderately high Power Rating of 64 contributes to an Value Trend Rating of B.
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Civista Bancshares’ current Price Target is $32 (-19% from the 2018 Target of $40 but +48% from the 09/27/19 price of $21.79). This slight fall in the Target is the result of a +25% increase in the equity base and a -35% decrease in the price/equity multiple. The forecasted decline in return on equity has a very large negative impact on the price/equity multiple and the forecasted increase in cost of equity has a very large negative impact as well. Partially offsetting these Drivers, the forecasted increase in growth has a very large positive impact.
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PTR’s return on equity forecast is 8.5% — in line with our recent forecasts. Forecasted return on equity enjoyed a dramatic, variable increase between 2010 and 2018. The current forecast is above the 2010 low of 4%.

PTR’s growth forecast is 14.0% — above our recent forecasts. Forecasted growth enjoyed a dramatic, erratic increase between 2010 and 2018. The current forecast is significantly above the 2013 low of 2%.

PTR’s cost of equity forecast is 7.8% — in line with recent levels. Forecasted cost of equity suffered a dramatic, steady increase between 2010 and 2018. The current forecast is above the 2012 low of 5.1%.
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At Civista Bancshares’ current price of $21.79, investors are placing a negative value of $-4 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 7.0% per year, and a return on equity of 9.9% versus a cost of equity of 6.8%.
PTR’s 2020 Price Target of $32 is based on these forecasts and reflects an estimated value of existing assets of $27 and a value of future investments of $5.

About John Lafferty 57444 Articles
During his career, John has developed valuation and stock rating methodologies, managed institutional portfolios and mutual funds, and provided equity research to institutional investors on thousands of companies. He has been Director of Research at PTR since its inception in 2004.

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