The Long and Short
Stifel offers compelling risk, reward
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors. This material does not constitute research.
Stifel Financial’s (SF) 2030s offer attractive value relative to similarly rated peers among brokers, asset managers and exchanges. The segment offers a broad spectrum of business types and risk profiles and has consequently generated a mixed performance over the past year. The sector’s year-to-date credit return is approximately 0.93% compared with a 1.23% for the broad investment grade index, while total return of -12.9% compares with -13.5% for the index. The SF credit should provide an opportunity to outperform the rest of the subgroup over the intermediate term.
Exhibit 1. Names in the broker, asset manager and exchange segment
Source: Amherst Pierpont, Bloomberg/TRACE Indications
The asset: SF 4.0% 05/15/30 @ +235/10YR; G+223; 5.81%; $89.18
Issuer: Stifel Financial Corp (SF)
CUSIP: 860630AG7
Outstanding: $400 million (Index-eligible)
Senior debt rating: BBB-/BBB+
Global deal: Yes
SF is a full service, diversified broker/dealer with traditional retail brokerage business lines, wealth management and a regulatory bank holding company with both investment and commercial banking operations. The company has $38 billion in total assets and $27 billion in total deposits. SF’s status as a bank holding company makes it subject to strict regulatory monitoring, providing a level of oversight does not present among many comparable credit profiles in the segment.
SF has actively sought out bolt-on, strategic acquisitions over the years to attractively build out its various franchises and support annual revenue growth, most recently adding Vining Sparks in 2021 and ACXIT Capital Partners in the current year. SF has rarely done so while putting its own credit quality at risk.
SF reported third quarter 2022 earnings results on October 26 with adjusted EPS of $1.29 falling short of the $1.43 estimate amidst a challenging operating environment. Top line revenue fell just short of expectations at $1.05 billion, but both asset management and service fees and net interest income slightly exceeded estimates, with the latter setting a quarterly record up 85% year-over-year.
SF uses moderate leverage on the balance sheet for its ratings profile. The current leverage ratio as of the third quarter improved to 7.2x (assets/equity) from just under 9x as of full-year 2021. Reported debt-to-EBITDA was less than 2x as of last quarter with net debt-to-EBITDA of 0.4x.
SF has a solid liquidity profile with only one other debt maturity ahead of the 2030s, with $500 million due in 2024. The company has the total amounts available on its two revolving credit facilities – $200 million through 2024 and $400 million through 2026. SF has $1.4 billion in cash on the balance sheet as of 3Q22 versus $2.45 billion in total debt outstanding. The 2030 notes were issued at the peak of the 2020 pandemic issuance period to help shore up the balance sheet and were the company’s last trip to the public debt market.
This material is intended only for institutional investors and does not carry all of the independence and disclosure standards of retail debt research reports. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This message, including any attachments or links contained herein, is subject to important disclaimers, conditions, and disclosures regarding Electronic Communications, which you can find at https://portfolio-strategy.apsec.com/sancap-disclaimers-and-disclosures.
Important Disclaimers
Copyright © 2024 Santander US Capital Markets LLC and its affiliates (“SCM”). All rights reserved. SCM is a member of FINRA and SIPC. This material is intended for limited distribution to institutions only and is not publicly available. Any unauthorized use or disclosure is prohibited.
In making this material available, SCM (i) is not providing any advice to the recipient, including, without limitation, any advice as to investment, legal, accounting, tax and financial matters, (ii) is not acting as an advisor or fiduciary in respect of the recipient, (iii) is not making any predictions or projections and (iv) intends that any recipient to which SCM has provided this material is an “institutional investor” (as defined under applicable law and regulation, including FINRA Rule 4512 and that this material will not be disseminated, in whole or part, to any third party by the recipient.
The author of this material is an economist, desk strategist or trader. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM or any of its affiliates may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This material (i) has been prepared for information purposes only and does not constitute a solicitation or an offer to buy or sell any securities, related investments or other financial instruments, (ii) is neither research, a “research report” as commonly understood under the securities laws and regulations promulgated thereunder nor the product of a research department, (iii) or parts thereof may have been obtained from various sources, the reliability of which has not been verified and cannot be guaranteed by SCM, (iv) should not be reproduced or disclosed to any other person, without SCM’s prior consent and (v) is not intended for distribution in any jurisdiction in which its distribution would be prohibited.
In connection with this material, SCM (i) makes no representation or warranties as to the appropriateness or reliance for use in any transaction or as to the permissibility or legality of any financial instrument in any jurisdiction, (ii) believes the information in this material to be reliable, has not independently verified such information and makes no representation, express or implied, with regard to the accuracy or completeness of such information, (iii) accepts no responsibility or liability as to any reliance placed, or investment decision made, on the basis of such information by the recipient and (iv) does not undertake, and disclaims any duty to undertake, to update or to revise the information contained in this material.
Unless otherwise stated, the views, opinions, forecasts, valuations, or estimates contained in this material are those solely of the author, as of the date of publication of this material, and are subject to change without notice. The recipient of this material should make an independent evaluation of this information and make such other investigations as the recipient considers necessary (including obtaining independent financial advice), before transacting in any financial market or instrument discussed in or related to this material.
