Stocks’ Details

Citigroup, Inc.

Structured Investment linked to the iShares: Citigroup, Inc. (NYSE: C) offers a wide variety of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services, and wealth management. As on 11 November 2020, the market capitalization of the company stood at ~$101.87 billion. The company has issued an exchange-traded fund, iShares ESG Aware MSCI USA ETF, which tracks the performance of the MSCI USA Extended ESG Focus Index. This fund offers broad equity exposure through a structured investment to those who are interested to be associated with environmentally conscious investment solutions. The company has also been selected as a financial advisor to Gavi for the COVAX facility, wherein Citi will provide Gavi with expert advice on structures to mitigate sovereign, credit, and operational risks.

Quarterly Highlights: During the third quarter of 2020, the company reported a decline of 7% (YoY) in revenue to $17.3 billion, reflecting lower revenues in Global Consumer Banking and Corporate. In the same time span, net income of the company stood at $3.2 billion, reflecting a decline of 34% on pcp, mainly due to lower revenues, an increase in expenses, and higher credit costs. During the quarter, the company reported CET1 capital ratio of 11.8% and returned $1.1 billion to shareholders in the form of dividends, reflecting a payout ratio of 36%.

Quarterly Financial Highlights (Source: Company Reports)

Stock Recommendation: The company continued to navigate the effects of the COVID-19 pandemic and is focused on strengthening its capital position. As per NYSE, the stock is currently trading below the average of its 52-weeks’ trading range. The stock gave a negative return of 8.26% in the past three months but a positive return of 6.66% in the last one month. On a technical front, the stock of C has a support level of ~$42.67 and a resistance level of ~$51.34. On a TTM basis, the stock is currently trading at a P/E multiple of 9.59x, higher than the industry average (Financials) of 6.8x, and thus seems overvalued. Considering the current trading levels, financial performance, a bleak industry outlook, etc., we suggest investors to ‘Avoid’ the stock at the closing price of $48.93, up by 2.69% on 11 November 2020.

Vir Biotechnology, Inc.

Quarterly Highlights: Vir Biotechnology, Inc. (NASDAQ: VIR) is an immunology company, focused on combining immunologic insights with technologies to treat infectious diseases. As on 11 November 2020, the market capitalization of the company stood at ~$3.50 billion. During the third quarter ended 30 September 2020, the company reported an increase in revenue to $1.9 million, up from $1.4 million in the pcp. However, the net loss of the company went up to $84.6 million from $48.3 million in the same period 2019. As of 30 September 2020, the company reported ~$826.6 million in cash balance.

Quarterly Financial Highlights (Source: Company Reports)

New Research Characterizing Variation in the SARS-CoV-2: The company has recently published new research stating that the SARS-CoV-2 receptor binding motif is the least conserved region in the spike protein. This allows for the occurrence of mutations without disrupting human ACE2 binding.

Stock Recommendation: The company has established a strategic manufacturing network and is focused on executing its pipeline opportunities. As per NASDAQ, the stock of VIR is inclined towards its 52-weeks’ low levels of $11.65, proffering a decent opportunity for accumulation. The stock of VIR gave a negative return of 47.77% in the past three months and a negative return of 36.35% in the last one month. On a technical front, the stock of VIR has a support level of ~$20.35 and a resistance level of ~$31.88. Considering the rise in Q3FY20 revenue, data from new research, key investment risks, and current trading levels, we recommend a ‘Buy’ rating on the stock at the closing price of $27.61, up by 6.85% on 11 November 2020.

Mercer International Inc.

Quarterly Highlights: Mercer International Inc. (NASDAQ: MERC) is a global company based in Germany and Canada with major operations in forest products. As on 11 November 2020, the market capitalization of the company stood at ~$486.10 million. During the third quarter, the company reported a decline of 13% in revenues to $333.2 million from $383.5 million in the same quarter of 2019, primarily due to lower pulp sales volumes and realizations. In the same time span, operating EBITDA went down to $45.6 million from $50.8 million in the third quarter of 2019 but net income stood at $7.5 million, up from $1.2 million in the third quarter of 2019, reflecting strong cost control and steady production.

Quarterly Financial Highlights (Source: Company Reports)

Liquidity Update: As of 30 September 2020, the company reported a cash balance of ~$345.6 million, with revolving credit facilities of ~$255.0 million, providing aggregate liquidity of about $600.6 million. The decent financial performance and ample liquidity enabled the Board to declare a quarterly dividend of $0.065 per share, which will be paid on 23 December 2020.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company is expecting higher demand for lumber and prices in the US markets and improving sales realizations in the European lumber market in the upcoming quarter. As per NASDAQ, the stock of MERC is inclined towards its 52-weeks’ low levels of $5.77, proffering a decent opportunity for accumulation. The stock of MERC gave a return of 8.21% in the past one month. On a technical front, the stock of MERC has a support level of ~$6.45 and a resistance level of ~$8.90. We have valued the stock using the EV/Sales multiple based illustrative relative valuation and have arrived at a target upside of lower double-digit (in % terms). Considering the current trading levels, decent liquidity, and industry-wise scenario, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of $7.38, up by 0.82% on 11 November 2020.

Daily Comparative Chart (Source: Refinitiv, Thomson Reuters)

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