Spin-Off Research In the News

To Asia, Via Shinhan

Posted by Paul McCann on Mon, Aug 20, 2007 @ 10:08 AM


Personal Finance Inside Wall Street



To Asia, Via Shinhan

SHINHAN FINANCIAL GROUP (SHG) may not ring a bell. But it’s South Korea’s second-largest financial-services company and trades on the New York Stock Exchange, with a market cap of $25 billion. Its American depositary receipts (ADRs) have been one of the best performers among the financials, zooming from 86 in October to 148 on July 12-before the company got hit by subprime mortgage woes. Now that it’s at 130.56, investors like John Maloney, present of M&R Capital Management, who bought it at 141 in July, are buying more, He figures Shinhan, with total assets of $193 billion, will hit 170 in a year, based on its “very solid credit metrics and top-quality loan portfolios.” With a 14% yearly growth rate, ”shinhan is a cheap, low-risk way to get into the Asian market,” he says. He expects earnings of $13.36 a share in 2007 and $14.50 in 2008, vs. 2006’s $10.18 John Wadle of UBS (it did banking for Shinhan) says the stock has outperformed Korea’sNo.1 bank, Kookmin Bank, by 28% this year and by 74% since 2004. He tags is a buy. Chan Hwang of Morgan Stanley (it owns shares and did business with Shinhan), rating it “overweight,” says Korea’s operating environment continues to improve but the market underestimates Shinhan’s “potential credit and capital leverage.”

An Iron Mountain Of Strength

IN THESE VOLATILE TIMES in the market, some investors look for “safe and steady” stocks to ride out the storm. One example is Iron Mountain (IRM), the world’s largest provider of information storage and protection, whose business has been rock-solid and whose stock has kicked up despite the market’s wild swings, going from 25 on July 18 to 28.85 on Aug. 8. Part of the reason: Second-quarter results exceeded analysts’ forecasts due to internal growth and acquisitions aided in part by increasing opportunities in digital services. “Future growth will be driven by rapid expansion overseas, where its business has jumped 26%-mainly in Europe and Latin America.” Says David Gold of investment firm sidoti. The U.S. accounts for 56% of its business. Acquisitions abroad include companies in Italy and Germany. Gold, who rates Iron a buy with a 12-month target of 36, figures it will earn 75¢ a share on sales of $2.7 billion, and 90¢ in 2008 on $2.9 billion. Franco Turrinelli of William Blair, which did banking for Iron, describes the outlook for the information storage business as “very strong,” and he “strongly recommends adding to or establishing positions” in Iron Mountain’s stock.

Marshall & Ilslay: A Positive Spin-Off?

MARSHALL & ILSLEY (mi), the 16th-largest U.S. bank, with total assets of %56 billion, is among the financial sticks that got walloped by the market tumbling in just a month from 48 on July 3 to 40 on Aug. 3. But some pros are buying shares, which have edged up to 44.81. The reason: The stock is a bargain when you consider that Marshall is spinning off to shareholders its traditional banking and processing business in the fourth quarter. Joseph Cornell, founding principal of Spin-Off Advisors, estimates the value of the unit, named Metavante, at 23-about half the parent’s current value. Warburg Pincus has agreed to buy 25% of Metavante for $625 million, which puts the unit’s implied value at $2.5 billion. Adding debt of $1.75 billion, that translates to an enterprise value of $4.23 billion, notes Cornell. His estimate is based on recent deals and valuation of Metavante peers, such as First Data and Global Payments. Metavante, which accounts for 75% of marshall’s assets, will trade on the Big Board with the ticker MV. Marshall will use its current symbol of MI. Jn a report, Heather Wolf of Merrill Lynch rates the stock a buy with a price target of 57.

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