v2 Report
LBS Loan and Building Society (NS)

Commentary: Loan and Building Society is a Canterbury based financial institution; it has been operating since 1909 and has over time built up a strong balance sheet and solid financial performance. Currently of most interest with this stock is the fact that merger talks are under way with CBS (Canterbury Building Society), spurred on by a number of factors -with regulatory directions being a key driver e.g. supervision of non-bank financial institutions.  

Should the merger proceed it will create a larger institution that will be able to slash some expenses for example head office related where e.g. only one personnel, marketing, risk management, etc department would be required. So the merged company will have a size advantage and may be able to extract some economies of scale benefits. However both companies are essentially focused on the Canterbury region and south island in general - so there will be a degree of geographic concentration exposure which ideally should be diversified away and could be achieved through the addition of a 3rd party to the merger, or through securitisation -which could be used to rearrange the geographic dispersion of the loan book.  

Indeed a wild card is the purchase of PFGs shares by Southern Cross building society -which is based in Auckland, a 3 way merger here would create a much more compelling case and could even lead to the emergence of another bank potentially listed on the exchange.  

Overall LBS is reasonably profitable and has consistently improved profits over the past 4 years, it uses a relatively conservative debt level, which if increased should improve the ROE figure. Dividends are also stable, and valuation ratios are in line with that of CBS, its closest competitor.

by Callum Thomas
30-August-2007

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

Recent announcements: click here

IPOs and Investment Opportunities

Financials 
 

Statement of Financial Performance
	2007	2006	2005	2004
Revenue
Sales	-	-	-	-
Interest received	12,445,153	11,008,234	9,725,960	7,787,463
Other	2,550,446	1,535,289	364,510	249,820
Total Revenue	14,995,599	12,543,523	10,090,470	8,037,283
Expenses
Cost of sales	-	-	-	-
Other expenses	2,260,734	2,033,183	1,806,047	1,664,824
EBITDA	12,734,865	10,510,340	8,284,423	6,372,459
Depreciation	222,061	166,296	158,547	109,203
Amortisation	2,718	453	-	-
EBIT	12,510,086	10,343,591	8,125,876	6,263,256
Interest expense	10,698,138	8,792,753	6,757,502	5,085,546
Taxation	582,330	518,724	457,157	404,419
NPAT	1,229,618	1,032,114	911,217	773,291
Statement of Financial Position
	2007	2006	2005	2004
Assets
Current Assets
Bank and cash	1,310,632	2,602,271	184,745	848,535
Receivables	19,111	26,019	7,139	18,888
Inventory	-	-	-	-
Other	33,055,442	7,371,989	10,245,961	16,763,605
Total Current Assets	34,385,185	10,000,279	10,437,845	17,631,028
Non Current Assets
Property Plant & Equipment	1,269,655	1,187,222	926,244	995,554
Investments	5,190,299	5,003,198	5,011,525	5,032,906
Goodwill & Intangibles	53,908	56,626	-	-
Other	139,987,654	132,204,124	108,304,382	91,635,209
Total Non Current Assets	146,501,516	138,451,170	114,242,151	97,663,669
Total Assets	180,886,701	148,451,449	124,679,996	115,294,697
Liabilities
Current Liabilities
Payables	467,351	502,116	341,640	248,856
Short term borrowings	162,157,192	128,887,086	109,332,530	100,302,942
Other	1,144,738	1,044,669	733,575	581,784
Total Current Liabilities	163,769,281	130,433,871	110,407,745	101,133,582
Non Current Liabilities
Long-term Borrowings	1,499,027	3,106,679	3,946,360	4,326,441
Other	-	-	-	-
Total Non Current Liabilities	1,499,027	3,106,679	3,946,360	4,326,441
Total Liabilities	165,268,308	133,540,550	114,354,105	105,460,023
Net Assets	15,618,393	14,910,899	10,325,891	9,834,674
Statement of Cashflows
	2007	2006	2005	2004
Cash flows from operating activities
Operating revenues	14,956,080	12,516,087	10,037,480	8,137,498
Operating expenses	13,405,716	10,907,049	8,629,809	6,972,589
	1,550,364	1,609,038	1,407,671	1,164,909
Cash flows from investing activities
Inflows	44,562,620	24,790,948	30,825,544	36,504,481
Outflows	78,467,073	46,090,992	41,126,512	53,579,716
	(33,904,453)	(21,300,044)	(10,300,968)	(17,075,235)
Cash flows from financing activities
Inflows	31,662,454	22,674,875	8,649,507	12,745,715
Outflows	600,004	566,343	420,000	435,002
	31,062,450	22,108,532	8,229,507	12,310,713
Net Increase (decrease)	(1,291,639)	2,417,526	(663,790)	(3,599,613)
Opening cash	2,602,271	184,745	848,535	4,448,148
Closing cash	1,310,632	2,602,271	184,745	848,535
	Analysis
Per share figures
Dividend/shares	0.15	0.12	0.14	0.15
NPAT/shares (EPS)	0.31	0.26	0.30	0.26
EBITDA/shares	3.18	2.63	2.76	2.12
Net Assets/shares	3.90	3.73	3.44	3.28
Profitability
ROA	0.68%	0.70%	0.73%	0.67%
Equity multiplier	11.6	10.0	12.1	11.7
ROE	7.87%	6.92%	8.82%	7.86%
ROavgE	8.06%	8.18%	9.04%	-
Net profit margin	8.20%	8.23%	9.03%	9.62%
Liquidity
Net working capital	(129,384,096)	(120,433,592)	(99,969,900)	(83,502,554)
Current ratio	0.21	0.08	0.09	0.17
Quick ratio	0.21	0.08	0.09	0.17
Working capital ratio	-0.72	-0.81	-0.80	-0.72
Capital structure
Debt to equity	10.58	8.96	11.07	10.72
Interest coverage	1.17	1.18	1.20	1.23
Shares	4,000,000	4,000,000	3,000,000	3000000
Dividends paid	600,004	465,001	420,000	435,002
Dividend payout ratio	49%	45%	46%	56%
Growth rates
Revenue	19.55%	24.31%	25.55%
EBITDA	21.17%	26.87%	30.00%
NPAT	19.14%	13.27%	17.84%
Total assets	21.85%	19.07%	8.14%
Net assets	4.74%	44.40%	4.99%
g = (ROE*(1-DPR))	4.03%	3.80%	4.76%	3.44%
Other
Share price (14-August-07)	$            5.40	Avg 4 yr growth rate (NPAT)		16.75%
Market cap	$  21,600,000	Cmpdg 4 yr growth rate (NPAT)		12.29%
Enterprise value (EV)	$186,868,308	Avg 4 yr growth rate (NA)		18.05%
EV/EBITDA	14.67	Cmpdg 4 yr growth rate (NA)		12.26%
P/E Ratio	17.57
P/NA ratio	1.38
Dividend yield	2.78%
Earnings yield (E/P)	6%
Valuation (modified DDM)
g = (avg ROE*(1-DPR))	4.12%
ROE	8.06%	(proxy cost of equity)
(interest exp/liabilities)	6.47%	(proxy cost of debt)
simple WACC (k)	6.61%
P/E = DPR/(k-g)	19.64
EPS1 (g, cmpdg gr, avg gr)	0.32	0.35	0.36
P	$            6.28	$           6.78	$           7.05

Trading over the last year

Other

Last updated: 14-11-2007

Company balance date: 31 March

Supplementary Information

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