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Adetokunbo Abiola
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I am a writer, journalist, and a value investor. I manage my tech and oil and gas portfolio and engage in photography in my spare time. I write to assist investors find profitable value in the market.
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  • This Indiana Bank Offers A Good Dividend Upside

    The regional bank space is witnessing a transition period. The market has a difficult time determining the valuation to give a well-performing bank. Consequently, investors are hesitant about picking bank shares. Despite this, I remain focused on Horizon Bancorp (NASDAQ:HBNC). And I also think the market should not overlook signs that its recent merger with SCB Bancorp could prove a sound move for the long-term. Horizon Bancorp's shares are worth as much as $23 today, and investors should note that this could be a promising stock as it gears up for the future. However, they should also be aware of some risks.

    The Business of Horizon Bancorp
    Horizon Bancorp offers a full range of banking services with branch locations serving the greater Lansing, Michigan area. It operates 29 full service facilities. It is the holding company for Horizon Bank, which provides banking services in Northwestern Indiana and Southwestern Michigan. The company offers money market deposits, and its portfolio comprises of different kinds of loans. The company also provides corporate and individual trust and agency services. The company was founded in 1873 and is headquartered in Michigan City, Indiana.

    Penetrating new markets
    Because Horizon Bancorp wants to expand its market presence in Michigan and beyond, the company is ready to pay the $18 million it needs for the acquisition of SCB Bancorp. Under the deal, Horizon will pay SCB's shareholders $5.15 in cash for every share of common stock and fixed consideration of about 0.49 shares of Horizon Common stock.

    Horizon Bancorp's acquisition will widen its reach in Northern and Central Indiana as well as Southwestern Michigan. The merger is aimed at the acquisition of SCB's subsidiary Summit Community Bank. Horizon Bancorp hopes the acquisition of the bank will broaden its presence and augment its entry into Grand Rapids, Michigan. Grand Rapids and Lansing are large metropolitan areas. Summit Community Bank is known for creating banking solutions in the locality. Through the merger, Horizon can now penetrate the new market. The merger will bring in $161 million worth of assets at a cost of just $18.4 million.

    Will Horizon Bancorp Rest on its Oars?
    Along with the merger news, Horizon in its last quarterly report announced that it had made an offer to purchase land in Fishers, Indiana to complement its offices. The initiative is also to build its presence in the Indianapolis area. Horizon believes the upfront costs associated with the move are well worth the investment. For instance, the company achieved significant growth in Kalamazoo and Indianapolis. What this means is that Horizon now has the opportunity to build its presence in vibrant communities with tremendous prospects for the company. Horizon's initiative isn't just about opening offices, though, as the company's strategy also involves identifying and hiring exceptional lenders to build loan production teams.

    Horizon Capitalizes on Existing Opportunities
    Another key to Horizon's long-term future will also be the extent to which it capitalizes on strategic opportunities within its existing branch footprint. Horizon's strategy involves the hiring of seasoned commercial lenders in Northwest Indiana. This allows the company to strengthen its presence in Lake and Porter counties and give it the capacity to capitalize on business activities in these markets.

    That said, there are still other initiatives that will be undertaken by the bank. In the third-quarter report, Craig Dwight, Chairman and CEO, announced that Horizon will continue to get results in a variety of financial situations. Horizon will grow business loans and purchase money originations when slowdowns in residential mortgage financings lead to less income from mortgage warehousing. The company was able to generate a meaningful core growth in the last quarter by this means.

    The Valuation of Horizon Bancorp
    Horizon operates in a tough financial environment. Within the company's primary market, unemployment rates rose in 2009 and have remained elevated till date. This increase is driven by slowdowns in the nation's economy. Horizon Bancorp's higher than historical level of non-performing loans can be attributed to the high local unemployment and bankruptcy levels. Despite these constrains, Horizon posted record results through the first nine months of 2013.

    The company's net income for the period rose 9.7% to $15.8 million compared to the same period in 2012. It was the highest first nine months of net income in the company's history. However, the third quarter net income declined 1.3% compared to the same period in 2012. The decline was due to lower income from residential lending as demand for refinancing slowed.

    Over the past year, Horizon Bancorp has delivered a 7% rally. Despite this, it is priced competitively when compared to its rivals in the industry. Horizon has a price to earnings ratio of 10.17x, compared to 13.89x for 1st Source Corporation (NASDAQ: SRCE) and 15.19x for First Merchants Corp. (NASDAQ: FRME). Apart from the fact that Horizon Bancorp's price to earnings is priced very cheaply when compared to its rivals, the same situation is replicated in the price to sales ratio.

    I'll also mention that Horizon Bancorp's non-interest bearing deposits increased 6.8% to $223.4 million at September 30, 2013, compared with $209.2 million for the same period in the year prior. This indicates a growth in the amount of business relationships of small banking institutions. Additionally, interest bearing accounts rose 6.0% to $816.2 million at September 30, 2013, compared with $769.9 million at December 31, 2012.

    However, investors should also note the company has an operating cash of around $48 million (as of September 30, 2013) and a debt of $279 million. I really don't like the debt, and I suspect that a serious downturn in its sector could very well make the company's debt load a real issue. However, this has not happened, and the stock has not been lagging behind in the last few quarters.

    Bottom Line
    With all of the initiatives of Horizon Bancorp, it can be said the company will widen its presence and boost its growth potential. In the meantime, I think its earning yield is satisfactory, and its dynamics suggest future earnings could be higher. In September, it announced a dividend of $0.11 per share, a 10% increase over the $0.10 per share for the second quarter. The regular dividend payment equates to a $0.44-per-share annual dividend, yielding 1.9%. Also, the company trades below industry averages. Its latest merger will definitely affect income. Whether this is enough to make Horizon Bancorp worthwhile is up to each investor to decide for themselves, but the stock looks a promising one to me.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Tags: HBNC, long-ideas
    Dec 11 6:16 AM | Link | Comment!
  • Can BlackBerry Win With Bluetooth Smart Ready?

    In case you missed it, BlackBerry (NASDAQ:BBRY) and Bluetooth have agreed to strengthen Bluetooth Smart Ready in BlackBerry 10. Developers can now incorporate Bluetooth Smart functionality in their BlackBerry applications. In doing so, BlackBerry is counteracting the bad publicity related to its last earnings report, when the company missed Wall Street's quarter one revenue estimates of $3.36 billion, reporting revenues of just $3.07 billion instead. Along with the Bluetooth project, BlackBerry recently introduced a new security solution that separates personal apps and data on iOS and Android devices. These initiatives should ease some of the negativity surrounding BlackBerry, as it had already lost 23% of its value in the previous year, while plunging 60% this July.

    Shortcomings like this were almost unthinkable five years ago, when BlackBerry traded at almost $140 per share. At the time, the company was a leader in the smartphones sector. BlackBerry was successful in providing enterprise solutions to government agencies. It has since become apparent that competitors such as Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG), and Microsoft (NASDAQ:MSFT) have taken its market. The new initiatives should give hope to investors looking to go long on BBRY. They will boost sales of the company's make-or-break new line of devices. Some hedge fund managers are already positive about the stock.

    Hedge Fund Managers

    In the present quarter, 43 managers are holding shares of BlackBerry in their portfolio. Of the 10 funds with the largest number of shares, four elected to expand their positions. Some of the bullish managers include Peter Rathjens, Bruce Clarke, John Campbell, John Thaler, Philippe Laffont, Douglas Dillard Jr., and Raj Venkatesan. In fact, Douglas Dillard and Raj Venkatesan's Standard Pacific Capital increased its position by 700%. It is possible that these institutional investors have seen something fundamentally attractive about the BBRY stock.

    Fundamentals

    Delving into the fundamentals of the company, the price to book and price to sales ratios signal that BlackBerry is severely undervalued in comparison to all its competitors in the smartphones sector. BlackBerry's price to sales ratio is a meek 0.41. Investors are valuing the price to sales of Google (5.30), Apple (2.43), Nokia (NYSE:NOK) (0.43), and Microsoft (3.36) higher than BlackBerry. In addition, the price to book gives a similar conclusion. BlackBerry's price to book of 0.49 is below Nokia (1.56), Google (3.75), Apple (3.04), and Microsoft (3.31). Investors are also wise to look at the sentiment surrounding a company's debt/equity situation. BlackBerry is attractive by this metric too. Along with Apple, it has no debt, compared with a debt /equity of 0.40 for Google, 62,43 for Nokia, and 20.58 for Microsoft. Additionally, BlackBerry has a healthy cash per share of 5.48, which should provide some comfort to BlackBerry shareholders. Not surprisingly, some of the competitors are higher when looking at Apple (41.70), Google (163.69), and Microsoft (9.18). At 3.41, Nokia's cash per share is lower than BlackBerry's. Also BlackBerry's cash increased to $3.1 billion as of June 1, up about $200 million from the fourth quarter. In essence, BlackBerry has a good cash position, no debt, and low liabilities.

    Macroeconomic Environment

    It is also worth considering the state of BlackBerry's macroeconomic environment. Dependent on consumer and enterprise demand, the smartphones market has a bright future, as the product remains extremely popular. Specifically, industry level sale is expected to grow 32.7% year over year in 2013, reaching 958.8 million units. Additionally, price declines have made the product more affordable to consumers. Both of these factors will help BlackBerry's new initiatives, though the company faces a firm-specific issue in the near future.

    As mentioned earlier, BlackBerry missed the most recent earnings estimates because BlackBerry 10 did not show the expected sales. From a strategic point of view, the product needs more awareness. This is why BlackBerry's present and future initiatives are crucial.

    Conclusion

    BlackBerry's balance sheet remains healthy. Considering this fact, it does seem that a lot of negative sentiment is surrounding BlackBerry. Even if its revenue did not meet estimates, valuation indicators show that investors should push its shares higher. The new initiatives should perform this trick. Ultimately, it is up to investors to trust the company's fundamental analysis, which does show that the stock trades at a deep discount. An undervalued BlackBerry is a good bet to bounce upwards with the initiatives concerning BlackBerry 10.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Jul 29 11:38 AM | Link | 1 Comment
  • Will AT&T Show A Growth With The Baby TV?

    Some consumers may be a little scared about a speculation and the negative news about AT&T (NYSE:T), and I would never imply that they should not show an apprehension about the company's attitude to the customer. However, AT&T also has its share of the commendable stories on its customer service. One of them is the recent announcement that it has added Baby TV on its U-verse TV. This should enable AT&T to maintain its claim that it is a customer-friendly network. The launch will help AT&T to compete with Google (NASDAQ:GOOG) in Kansas City and the other markets. I believe AT&T will improve its revenue by 1% based on this and the other positive developments.

    Background

    The speculation is that AT&T and Verizon (NYSE:VZ) may soon charge their existing customers more fees for their service. The fewer number of the new customers means both companies are deprived of an additional revenue. Both companies have to charge the existing customers to balance their books. The recent Mobility Administrative Fee that AT&T started charging is a pointer to this intention. The speculation deserves a customer's apprehension and may make one to choose the other carriers for a wireless service. I know this speculation has not become a reality. But I do know it will have a negative effect on the stocks of the telecoms companies.

    However, AT&T is striving hard to be customer friendly. The Baby TV has been launched on the U-verse TV channel. It is a commercial-free project. The development will add AT&T to a growing list of the distributors of the Baby TV. The U-verse subscribers will have an access to a channel that is agreeable to the parents and the children. The initiative will increase the customer satisfaction on the company, as it will portray it as ready to meet the needs of the consumers. A good image for the company is created. This will negate the bad publicity that came with the speculation and translate to an increased revenue.

    AT&T is also developing the other new initiatives that will make it profitable. The company announced that the Nokia Lumia 1020 is now available on its network. The phone features a breakthrough camera technology and allows an easy access to the features reserved for the cameras with the convenience of the smartphone. It is the first Window phone to include a free app that enables the consumers to share an image and a video.

    AT&T will increase its market share in the mobile sector as its product and service expand. It will be a confirmation that its efforts to satisfy the needs of the customer is succeeding. This will mitigate the bad publicity and enhance the company's future price multiples.

    Competition

    Verizon is also expanding its products and services. This will enable it to overcome the bad publicity arising from the speculation. Verizon has created a new service called Verizon Live. It will be a part of its video-on-demand product and will channel the service via its video-optimized media platform. Meanwhile, the Verizon HTC One moved a step forward when the product passed through the FCC. These developments indicate that Verizon is trying to meet the expectations of its customers. They create a good corporate image. However, with a price to earnings ratio of 27.79, compared with 127.92 for Verizon, and an EPS of 1.29, compared with 0.40 for Verizon, AT&T is not doing badly.

    One of AT&T's rivals is also making a progress. Sprint (NYSE:S) announced that the SoftBank's acquisition of the company has been completed. The massive capital infusion from the deal will enable Sprint to strengthen its network. It is important to note that Sprint will keep its current ticker, so it is certainly making an important move with the development.

    Sprint is also in the news concerning its Clearwire (CLWR) acquisition, but there is no reason for a concern. Sprint has completed the acquisition, both companies will maintain their current operation. Some say the situation is confusing, but it is not so. However, the investors have to be vigilant. There will be no problem if the organizations carry out their operations in a fair way. With an EPS of -1.37, compared with 1.29 for AT&T, and a gross margin of 43.90%, compared with 59.96% for AT&T, Sprint appears to be a little behind.

    Conclusion

    I think AT&T will continue making the moves to mitigate the effects of the bad publicity directed against it. The determination to increase its products and the addition of the Baby TV to the U-verse TV should improve the stock in the long run.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Tags: S, GOOG, S, VZ, T, long-ideas
    Jul 12 2:56 PM | Link | Comment!
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