FWIW, I bought MBNA Corp (KRB) this week. Here are my notes I'm preparing for my next club meeting; note that we heard a presentation on COF, a competitor, and some of my comments are in how the two are positioned against each other.
Note COF came out as a "buy" but no action was taken because of too many questions.
- Kris
Using 25-50-25 zoning, EPS growth of 17.7% (vs. consensus 18.7% and VL's 21.5%), low price of $22, and an average high PE of 25.5, I get a buy for MBNA below $44, annual appreciation of 24%, and an up/dwn of 4.7 to 1.
Other snips:
It is on S&P's Platinum Portfolio list with 5 stars and VL gives it a 2 rating.
My Graham Fair Value calculation using consensus estimates of $2.60, EPS growth of 16%, and a maximum PE of 8.5 (!) gives a FV of $72, or 94% above its current price.
Quicken's 1-click shows MBNA scores better than COF in NAIC, Value, and Buffett screens.
While MBNA does have a lot of debt, it is less than COF's (46% of capital vs. 68%). COF has been growing faster but MBNA "scores" better in dividend yield, profitability, management effectiveness, and efficiency. Relative to COF, MBNA seems to get more bang for the buck. Its ROE has been growing since 1995 vs. COF's precipitous decline since 1993.
MBNA's current price is farther down in the buy zone than COF's and has a better up/dwn ratio.
Cover Sheet:
What do they do and how do they make money? (Crayon Test) MBNA is the world’s largest independent credit card lender and the leader in “affinity cards” for organizations and charities. MBNA focuses on the mid-to-high end credit risk; a typical customer has annual household income of about $70,000.
What’s the reason for difference between sales and EPS growth (if any)? N/A, but it is important to note the huge impact changing interest rates have on the earnings of financial services companies like MBNA, COF, FNM, and WM.
Where/what are the anticipated sources of future growth? Like COF, MBNA provides deposit, loan and card processing services. But, it appears MBNA has more of a global presence; it recently said it plans to sell credit cards and related products in Spain, its fourth international market. The company currently has businesses in the U.K., Ireland and Canada, with more than 7.5 million customers with $11 billion in loans.
Does the company have a sustainable advantage gained through business momentum, patents, a quasi-monopoly, visionary leadership, a proprietary product, new technology, great management and/or inept competition? MBNA pioneered ``affinity card marketing,'' linking its credit cards to groups and associations, from organizations as varied as the Magic Johnson Foundation and Britain's Wimbledon Football Club. Affinity card marketing is growing in popularity because they target individual membership organizations and develop a co-branded relationship. These credit card users tend to use the card more and have below average credit losses, as they perceive default as damaging to the organization.
MBNA said it added 2.4 million new customers in the first quarter in what is an increasingly competitive and saturated market. They have the endorsement of 5,000 organizations. In 2001, MBNA acquired 439 new endorsements, including 56 in Europe and 75 in Canada.
Is the company part of a paradigm shift (e.g., connectivity, mobility, interactivity)? No, but Americans love their credit cards and their organizations!
Does the company compete on something other than price? Yes, compared to other sub-prime card issuers, they are discriminating and selective in their target audience. They enjoy a lower default rate. They seem to be effective in their marketing efforts, as they added 2.4 million customers in the first quarter, in a difficult environment.
Are the Gross Margins at Least 40%? NA Are the Net Profit Margins 10% or greater? Yes! A stunning 53% (vs. 23% for COF) |
