Is Berkshire Cheap? Not the One Run By Warren Buffett

Berkshire Bancorp Inc.

Introduction:

Berkshire Bancorp Inc. (NASDAQ:BERK) was founded in 1979 and is based in New York, New York. It operates as the bank holding company for The Berkshire Bank that provides community banking services primarily to businesses, professionals, and retail customers’ s loan portfolio comprises commercial mortgage loans secured by office buildings, retail establishments, multi-family residential real estate, and other types of commercial property; commercial loans to businesses for inventory financing, working capital, machinery and equipment purchases, expansion, and other business purposes; and residential mortgage loans secured by first liens on one-to-four family owner-occupied or rental residential real estate, as well as residential single family construction, home equity, and short-term fixed-rate consumer loans. The company also offers title insurance agency services.

Stock Snapshot:

As of Nov 13’ 2012, the stock for Berkshire Bancorp Inc. (NASDAQ:BERK) stood at USD 7.87, representing a market capitalization of USD 113.45 million. The stock has traded between a range of USD 6.29 and USD 9.20 over the last 52 weeks. The stock has been trading at a P/E ratio of 10, and a P/B ratio of 0.89. The stock has an average 5 year of dividend yield of 2.10%.

Competitor Analysis:

State Street Corporation (NYSE:STT), a financial holding company, provides various financial products and services to institutional investors worldwide. As of Nov13’ 2012, the stock stood at USD 44.59 with a total market capitalization of USD 20.77 billion. The stock has been trading at a P/E ratio of 11.33 and a P/B ratio of 1.03.

Valley National Bancorp (NYSE:VLY) operates as the bank holding company for the Valley National Bank that provides various commercial, retail, trust, and investment services. As of Nov 13’ 2012, the stock for the Company stood at USD 9.02 with total market capitalization of USD 1.78 billion. The stock has been trading at a P/E ratio of 12.55 and a P/B ratio of 1.19. The stock has 5 year average dividend yield of 4.70%, with a payout ratio of 96.0%.

Financial Analysis:

Revenue:

For 6MFY12, net revenue increased by 46% YoY and were recorded at USD 88 million. This included the impact of organic growth as well as the business combinations. For 6MFY12, the revenue per share increased by 4% YoY compared to the corresponding period last year.

Net Interest Income:

For 6MFY12, the Company reported interest income of USD 66.2 million, as compared to USD 44.34 million, representing a YoY increase of 49.3% mainly due to organic growth, as well as due to business combinations. Average earning assets increased by 37% during 1HFY12, as compared to the corresponding period last year. The Company was also able to improve its net interest margin ratio

Net Interest Margins:

For 6MFY12 the Company reported a net interest margin of 3.7%, as compared to 3.52% for the corresponding period last year. The improvement in the margin resulted from slight increases in loan yields, together with significant reductions in funding costs. The Company maintains a close focus on its loan and deposit pricing disciplines to lessen the potential for margin compression. The Company has also balanced its portfolio growth and funding sources to support the net interest margin and to support the ongoing organic growth in market share, as it continues to pursue strategic growth in its regional markets.

Net Income:

For 6MFY12, the Company recorded net income of USD 13.8 million, as compared to net income of USD 4.17 for the corresponding period last year; representing a YoY increase of 330%. The basic and diluted earnings per share were recorded at USD 0.65 FOR 6MFY12, as compared to USD 0.31 for the corresponding period last year.

Financial Position:

As of 30^th June 2012,the book value per common share was USD 8.87. The Company had total cash of USD 138.5 million, resulting in cash value per share of 9.61.

Factors to Watch Out For:

The stock has great prospects for value investors based on the following factors:

A cheap stock in relative valuation terms!
Sound management of interest margin!
Growth strategy of the management where by the company is growing organically and also acquiring businesses!
Strong growth in net earnings!

Sources Used:

Company Website, Yahoo Finance, Bloomberg