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.
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)
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.
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