The Bank Of South Carolina Corporation: A Debt-Free Cash Cow On Sale

| About: Bank of (BKSC)

Summary

The Bank of South Carolina Corporation is a highly profitable company.

It trades at a low multiples.

As a debt-free company, it is a cash cow.

The Bank of South Carolina Corporation (NASDAQ:BKSC) is currently offering investors an opportunity to buy portions of the company at about $16/share. The stock has been moving sideways for the past year, putting in a solid base in the sub-$16.50 range and may now provide a good entry point as it approaches this resistance level again. Right now, BKSC is about five percent off the 52-week low and has moved up these past two months. This multi-month base provides long-term investors with a good opportunity to initiate a position.

The Bank of South Carolina Corporation has a business model that is simple and sustainable. The company is a regional bank serving the South Carolina area that focuses on small- and mid-sized businesses, in addition to retail banking. Being a regional bank, it's not subject to as many regulatory hurdles as the larger banks. According to its most recent annual report, revenue actually grew over 6% year-over-year, and net income grew by over 11% over the same timeframe. A main draw of this company to me is its sheer profitability. Its operating margin is 96%, and its profit margin is over 33%. That's incredible! The company is able to increase its income at a rate that crushes inflation, passing along the devastating effects of inflation on to their customers, not their shareholders.

Despite the growth, I believe the company trades at a discount to its true valuation. BKSC currently trades at 16 times TTM earnings and only two times cash. BKSC appears to be heading in the right direction as a company, and I am content to accumulate shares at this perceived discount. EPS has grown by 9% annually for the past five years. Even if future EPS remains flat, you're still only paying sixteen times earnings, putting it right in the middle of its competitors in the Mid-Atlantic regional banking industry. BKSC is the type of company that I want to own for the long haul, and this appears to be an opportune time to initiate my position.

The Bank of South Carolina Corporation also has a decent yield: You get paid to wait while revenue growth and EPS growth take your investment higher over the years. BKSC has a current yield of 3.2%. Is the dividend sustainable? Absolutely. Its payout ratio is at 50%, giving it ample room to increase its dividend. And increase it, it has. BKSC is a Dividend Challenger, having increased it's dividend annually for the past five years, and is included on the famous 'CCC' list, produced by David Fish. Additionally, BKSC is sitting on $7.64 of cash per share. That's about fifteen years' worth of dividend payments at the current rate!

Despite the above positive factors, the main attractive quality here is to buy a highly profitable, quality company at sixteen times earnings. Even if profits were to stagnate or regress from here, it's still trading at only two times cash on hand! Additionally, and this point can be overlooked, the company has no debt whatsoever. You read that correctly. Zip. Zero. Zilch. None. This is a profitable cash cow of a company with solid free cash flow, high margins, no debt, trading at a low earnings multiple.

As always, this article represents my opinions at the time of writing. You should do your own due diligence before making any investment decisions. However, I believe that The Bank of South Carolina Corporation represents a quality company that is trading hands at a discount. Please provide your feedback in the comments section below.

Disclosure: I am/we are long BKSC.

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.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

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Tagged: , , , Regional - Mid-Atlantic Banks
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