Thurgauer Kantonalbank IPO 2014

Please note this is a post in relation to my current studies to become a CIIA (Certified International Investment Analyst).

According to my information (based on the press release) the Thurgauer Kantonalbank (TKB hereafter, Ticker: TKBP) is placing up to 2.5m PS (Partizipationsscheine = participation certificates) from today till April 4th. Share trading is expected to commence April 7th. Book building range: CHF 64 – 74.

According to my calculations buyers of these PS will be entitled to receive 12,5% of the TKB’s earnings (Jahresgewinn), which was CHF 99.8m 2013 and CHF 87.9m 2012 according to the TKB annual report 2013 (page 82) starting next year.

That would be around CHF 12,475m earnings (CHF 4.99/PS). Assuming the shares are priced at CHF 64 that would give PE Ratio of roughly 13, assuming they’re priced at CHF 74 the PE would be 15.

Now according to NY Stern caluclations based on S&P Capital IQ, Bloomberg and the Fed the bank PE ratios are, as of January 2014, 15.24. While the trailing PE is 16.47 and the forward PE is 14.59. Looks reasonable. Then look at the expected growth rate: It’s only 6.27% giving a PEG ratio of 1.85 (1 is fairly valued according to this article). Note the group is very small, just 7 banks. However there are also ratios for regional banks (line 8 of the data) which have data from 721 (!) banks. There growth is also expected to be single digit but higher at 7.25% vs 6.27% for the small group. The PEG ratio is 1.83. However the PE ratio trailing and forward is 21.05 vs 17.53.

Based on that information the placing of TKB shares at CHF 64 would seem reasonably cheap. Also CHF 74 would be justifiable depending on the growth rate used. But if you look at how profit is distributed (see fig. 2), that 5% of profit is used for compensating the canton for the state guarantee (Staatsgarantie) the TKB enjoys, then the PE ratio already rises.

Here’s a look at the most recent income statement of the TKB:

Fig. 1TKBP Income Statement

The fall in bad loan/debt provisions, losses change (Wertberichtigungen – see green arrow) is the only thing that kept the TKB from posting just very slight growth.

Fig. 2PnL-TKBP-2

Fig. 3

tkb-ausfallrisiken-wertberichtigungen

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