Important Updates for Investors
Carla Pasternak's Premiere Issue of High-Yield International Just
Released
Income expert Carla Pasternak's debut issue of High-Yield
International covers a Taiwanese manufacturer yielding 9.5%... a
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Government's Biofuel Timetable Could Spell +15,900% Growth
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The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
investors. This massive spending, combined with movement out of U.S.
Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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One of the Cheapest Financial
Stocks in the World |
Published:
September 21, 2007
Shinhan Financial (NYSE: SHG, $125.25) is Korea's second-largest bank with more than 1,000 branches spread throughout the nation. In addition to basic banking services, SHG owns a brokerage firm, South Korea's largest credit card operation, and an insurance division. Outside of Korea, Shinhan has applied for a banking license in fast-growing China and already has branches in India and Cambodia.
SHG has been growing rapidly in recent years through a combination of cross-selling financial services and acquisitions. To the first point, SHG has a large customer base; many of these customers have simple deposit accounts at the bank. SHG has been growing by successfully selling other types of financial services to its existing customer base. For example, SHG might try to sell credit card or insurance products to existing customers with savings or checking accounts.
This is certainly not a new strategy, as most banks all over the world try to cross-sell financial products. But in Korea, the strategy is really starting to take off. Thanks in large part to recent changes to Korean law, traditional banks are now allowed to participate in other financial services businesses. As a result, they can finally offer a wide variety of products to their customers. This opening up of the financial industry gives SHG a much wider selection of services to sell to its existing base -- positive financial reforms are ongoing and should continue to support SHG's growth rate over the next few years.
In particular, Korea is expected to enact a new law in 2009 called the Capital Markets Consolidation Act. This law is designed to make Korea a more globally competitive financial center; the aim is to encourage banks and brokerage firms to expand into investment banking and other advanced financial services. SHG will benefit thanks to its strong competitive position in many financial services businesses.
Of course, SHG has also been an aggressive acquirer. Earlier this year, for example, the bank purchased LG Card, Korea's largest credit card issuer. That move propelled SHG into a dominant position in the Korean credit card market
overnight.
SHG's main domestic competitor is slightly larger rival Kookmin Bank. But SHG has been outmaneuvering Kookmin in recent years, expanding more rapidly into financial services lines outside of basic banking. And Kookmin has also been tied up with the acquisition of Korea Exchange Bank; this deal has been dragging on for two years amid a series of investigations, distracting management's attention. But even if Kookmin regains its footing, there's plenty of room for both banks to grow in this evolving market.
Meanwhile, SHG is one of the cheapest financial services stocks in the world. The bank trades at less than 7.5 times next year's earnings and sports a long-term growth rate of +20%. That means the company's price-to-earnings-to-growth ratio (PEG) stands at less than 0.50.
To put that into context, Citigroup (NYSE: C) and Bank of America (NYSE:
BAC) trade at around 9.5 times forward earnings yet have a long-term growth rate of just +8% to +10% -- a PEG ratio of around 1.0. If SHG traded at the same valuation, then the stock would be worth more than double its current price. With these points in mind, SHG looks like a quality play on Korean growth at a reasonable valuation.
-- Paul Tracy
Editor
StreetAuthority
Market Advisor
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Paul Tracy
founded StreetAuthority and became Chief Investment Strategist in 2001. Prior to
that he spent several years as Managing Editor at a multi-million dollar
financial publishing firm with over 150,000 subscribers. In addition to
his role as managing editor and lead financial writer, he was also
responsible for equity research and managing a team of seasoned
professional financial writers, researchers and market commentators.
Paul's previous experience
includes a position at Robert W. Baird & Co.'s full-service
brokerage operations as well as economic research work on a Money and
Banking project funded by the National Bureau of Economic Research. He
has also spent time doing outside consulting and research for the
University of Virginia, has appeared as a guest expert on several
prominent financial radio shows, and has been a featured speaker at
various investment conferences across the U.S.
Paul graduated with a B.S.
in Finance and Management from the McIntire School of Commerce at the
University of Virginia.
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