v2 Report
CBS Canterbury Building Society (NS)

Commentary: Canterbury Building Society (CBS) is a financial institution that has been around since 1875, recently changing its name to CBS after emerging from the merger of Ashburton Building Society and SMC Building Society.

Keeping with the merger theme CBS is currently in talks with LBS, another building society in the Canterbury region. “Later in the year, following a mutually satisfactory due diligence process, CBS Canterbury will seek shareholder support for a merger with Loan and Building Society.” (14 Jun, 2007, 16:27 FLLYR Annual Results for year ended 31 March 2007)

As outlined in the analysis and commentary for LBS the merger would create a larger institution that would stand to gain from economies of scale, however it would also result in increased geographic concentration of the loan book. One way around this would be to make greater use of alternative distribution channels, or securitisation, or simply to add a 3^rd party to the merger such as Southern Cross Building Society; which has incidentally purchased a stake in both companies from PFG (a finance company that was heavily involved in securitisation, which is now in receivership following the spread of global credit worries impacting on liquidity, risk aversion and institutional debt markets).

In terms of profitability, CBS has consistently produced profits, and improved the NPAT figure each year; the overall profitability level has remained relatively consistent. In many ways the financial statements of LBS and CBS are very much similar, with comparable ROA figures and use of leverage, however LBS is slightly more profitable e.g. net profit margin, ROE. Should the merger go ahead it would very much be a merger of equals – and with reasonably similar cultures, transition management should be fluid.

It’s hard to say which stock will provide the best entry into the proposed merger, however CBS is the larger company by any measure, so on the basis of bargaining power alone CBS may provide a better entry; however current pricing indicates LBS to be valued slightly lower by the market relative to CBS. This will certainly be an interesting situation to observe from any perspective, and only time will tell what sort of institution may emerge.

Website: http://www.cbscanterbury.co.nz/

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Financials 
 

Statement of Financial Performance
	2007	2006	2005	2004
Revenue
Sales	-	-	-	-
Interest received	28,516,083	21,958,671	17,577,992	13,425,634
Other	1,223,946	817,868	753,687	761,918
Total Revenue	29,740,029	22,776,539	18,331,679	14,187,552
Expenses
Cost of sales	-	-	-	-
Other expenses	4,767,174	3,383,521	2,942,553	2,545,181
EBITDA	24,972,855	19,393,018	15,389,126	11,642,371
Depreciation	423,894	309,439	325,681	355,640
Amortisation	49,271	-	-	-
EBIT	24,499,690	19,083,579	15,063,445	11,286,731
Interest expense	21,743,889	16,520,684	12,567,312	9,517,689
Taxation	903,544	869,917	894,176	630,339
NPAT	1,852,257	1,692,978	1,601,957	1,138,703
Statement of Financial Position
	2007	2006	2005	2004
Assets
Current Assets
Bank and cash	825,363	69,901	1,046,028	182,715
Receivables	762,194	631,341	413,438	233,689
Inventory	2,847,344	-	-	-
Other	64,636,016	59,221,001	48,898,989	33,329,034
Total Current Assets	69,070,917	59,922,243	50,358,455	33,745,438
Non Current Assets
Property Plant & Equipment	4,326,305	3,752,332	3,537,637	3,374,916
Investments	4,824,004	4,806,004	1,821,294	1,838,467
Goodwill & Intangibles	443,444	-	-	-
Other	270,405,216	227,318,177	191,844,549	172,707,192
Total Non Current Assets	279,998,969	235,876,513	197,203,480	177,920,575
Total Assets	349,069,886	295,798,756	247,561,935	211,666,013
Liabilities
Current Liabilities
Payables	4,514,368	3,321,358	3,114,453	2,326,606
Short term borrowings	313,024,525	263,970,887	216,448,363	188,067,952
Other	735,260	557,404	493,039	1,102,164
Total Current Liabilities	318,274,153	267,849,649	220,055,855	191,496,722
Non Current Liabilities
Long-term Borrowings	3,034,334	5,833,592	6,308,976	3,846,027
Other	-	-	-	-
Total Non Current Liabilities	3,034,334	5,833,592	6,308,976	3,846,027
Total Liabilities	321,308,487	273,683,241	226,364,831	195,342,749
Net Assets	27,761,399	22,115,515	21,197,104	16,323,264
Statement of Cashflows
	2007	2006	2005	2004
Cash flows from operating activities
Operating revenues	29,676,732	22,585,579	18,151,128	14,121,447
Operating expenses	27,023,883	20,481,701	15,135,366	11,883,511
	2,652,849	2,103,878	3,015,762	2,237,936
Cash flows from investing activities
Inflows	245,372,520	231,825,413	203,317,009	174,890,432
Outflows	255,255,292	280,887,558	238,228,565	210,524,771
	(9,882,772)	(49,062,145)	(34,911,556)	(35,634,339)
Cash flows from financing activities
Inflows	9,207,331	47,047,140	34,471,017	32,574,172
Outflows	1,221,946	1,065,000	905,000	800,006
	7,985,385	45,982,140	33,566,017	31,774,166
Net Increase (decrease)	755,462	(976,127)	1,670,223	(1,622,237)
Opening cash	69,901	1,046,028	(624,195)	998,042
Closing cash	825,363	69,901	1,046,028	(624,195)
	Analysis
Per share figures
Dividend/shares	0.19	0.19	0.16	0.20
NPAT/shares (EPS)	0.28	0.31	0.29	0.28
EBITDA/shares	3.81	3.53	2.80	2.91
Net Assets/shares	4.24	4.02	3.85	4.08
Profitability
ROA	0.53%	0.57%	0.65%	0.54%
Equity multiplier	12.6	13.4	11.7	13.0
ROE	6.67%	7.66%	7.56%	6.98%
ROavgE	7.43%	7.82%	8.54%	-
Net profit margin	6.23%	7.43%	8.74%	8.03%
Liquidity
Net working capital	(249,203,236)	(207,927,406)	(169,697,400)	(157,751,284)
Current ratio	0.22	0.22	0.23	0.18
Quick ratio	0.21	0.22	0.23	0.18
Working capital ratio	-0.71	-0.70	-0.69	-0.75
Capital structure
Debt to equity	11.57	12.38	10.68	11.97
Interest coverage	1.13	1.16	1.20	1.19
Shares	6,546,260	5,500,000	5,500,000	4000000
Dividends paid	1,221,946	1,065,000	905,000	800,006
Dividend payout ratio	66%	63%	56%	70%
Growth rates
Revenue	30.57%	24.25%	29.21%
EBITDA	28.77%	26.02%	32.18%
NPAT	9.41%	5.68%	40.68%
Total assets	18.01%	19.48%	16.96%
Net assets	25.53%	4.33%	29.86%
g = (ROE*(1-DPR))	2.27%	2.84%	3.29%	2.07%
Other
Share price (14-August-07)	$            5.30	Avg 4 yr growth rate (NPAT)		18.59%
Market cap	$  34,695,178	Cmpdg 4 yr growth rate (NPAT)		12.93%
Enterprise value (EV)	$356,003,665	Avg 4 yr growth rate (NA)		19.91%
EV/EBITDA	14.26	Cmpdg 4 yr growth rate (NA)		14.20%
P/E Ratio	18.73
P/NA ratio	1.25
Dividend yield	3.52%
Earnings yield (E/P)	5%
Valuation (modified DDM)
g = (avg ROE*(1-DPR))	2.53%
ROE	7.43%	(proxy cost of equity)
(interest exp/liabilities)	6.77%	(proxy cost of debt)
simple WACC (k)	6.82%
P/E = DPR/(k-g)	15.37
EPS1 (g, cmpdg gr, avg gr)	0.29	0.32	0.34
P	$            4.46	$           4.91	$             5.16

Trading over the last year

Other

Last updated: 14-11-2007

Company balance date: 31 March

Supplementary Information

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