Citigroup (C) is expected to approach a tangible book value of $55 per share over the next two years, making Citi an important holding at the Large Cap Value Strategy, a longer-term strategy benchmarked against the Russell 1000 Value, says David F. Hone, Portfolio Manager of the strategy at William Blair & Company, L.L.C.
“Given Citigroup’s attractive global footprint and diversified model, we believe the company can generate attractive growth, particularly in book value per share. Key to our thesis is management’s continued execution on winding down the noncore component of the business, Citi Holdings, which should unleash excess capital for the shareholders’ benefit and a higher valuation,” Hone said.
Hone says many investors left holdings like Citigroup four years ago during the financial crisis, and now they are suffering from a “poor sentiment hangover” despite favorable fundamental trends in portfolio optimization, growing dividend payouts and excess capital return.
“This steady improvement in book value supported by a growing return of capital stream to shareholders could expand the valuation of Citigroup toward one times tangible book value over time,” Hone said.