Hingham Institution for Savings (HIFS), mcap=$563m, price $262 vs $292

$HIFS pitch:
– Exemplary banking operations are run by conservative managers with a deep understanding of real estate lending and an intense focus on costs.
– At 10x PE priced in line with the average bank despite being a far superior business.
– The continued compounding of equity capital will result in a 4x – 6x return over 10 years.
– Expected to generate ROE of 15-20% over the next decade.
– Sits at 1.7x BV, near its 5-year low.
– The bank is family run with insiders owning 31% – a long track record dispels any concerns of nepotism.
– Mostly single-family and multifamily residential portfolios.
– Only loans personally assessed by the board are on the books with an intense focus on collateral – LTV by 53%.
– Net charge-offs are almost non-existent.
– Interest rate sensitivity (especially for over longer periods) is somewhat protected due to 66% of assets in adjustable rate loans.
– Reinvests most of the earnings to compound capital – only 10% dividend payout ratio.

$HIFS valuation:
– Over 16 years averaged ROE of 14% vs 8% for the general banking industry.
– Trades at 10x LTM PE.
– Expected to compound equity capital at a 15%+ rate over the coming decade.

Exp. gain: 4x to 6x over 10 years.

Full HIFS write-up (free guest account required):

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