Thread/ $HIFS - A high quality, small-cap bank with exceptional management.

1/ Hingham Institution for Savings was founded in 1834 as a mutual savings bank in Boston, Massachusetts. It eventually listed in 1988.
2/ $HIFS currently have 11 locations, 8 of which are in the South Shore of Massachusetts. The have also recently expanded into Washington D.C in which management recognise as a similar market and a growth opportunity.
3/ Currently $HIFS has a market cap of $680M. Since 1993 when the Gaughen family took full control of the bank, the stock has returned 100-1 for shareholders. Pretty impressive considering how small the company still is.
4/ The history of the bank is worth looking into, but too detailed for a Twitter thread. There is only one write-up by ladera838 on Value Investors Club if you are interested. A great read!
5/ the most important detail of the banks history is since the Gaughen family took over, the bank completely changed and has performed exceptionally. Book value per share improved from $7.33 to $137.02 between 1990-2020. The family currently own ~30% of shares outstanding
6/ maybe more impressive than the BV per share growth is the improvement of their efficiency ratio from 145% in 1990 to 25% today. Management have been obsessed with cutting unnecessary costs and reluctant to increase any overhead.
7/ $HIFS do not make any acquisitions, don’t dilute shares (besides small amounts from options packages), they haven’t bought back shares and only payout ~15% of earnings. Which is much lower than a typical bank.

Instead, management reinvest almost all retained profits.
8/ compared to a usual bank $HIFS keeps operations very simple. They only do three things;

1.Residential real estate lending
2.Commercial real estate lending
3.Deposit banking

All of which takes place in Massachusetts & now Washington D.C
9/ Warren Buffett once said “Banking is very good business if you don't do anything dumb.” $HIFS seems to live by that mantra and are laser focused on being extremely efficient and effective with their simple operations.
10/ the chart below shows just how efficient $HIFS are compared to other banks. Their net charge-offs are almost unnoticeable compared to other FDIC insured banks. Even during tough economic times such as 08-09
11/ so it’s clear to me that’s $HIFS is a high quality bank with great management, now for a simple look at valuation.

Book value has increased at ~12% CAGR over the past 20 years. The average P/B multiple over this period has been 1.6x and they currently trade ~2x book.
12/ It is likely that they continue to compound BV per share at 12% over the next 5-10yrs, potentially higher with expansion into Washington. So let’s be generous and assume 14% plus the 1% dividend yield..
13/ that’s a ~15% annual shareholder return if the P/B multiple doesn’t revert towards the historical mean. Assuming it does re-rate down then annual returns are maybe closer to 10-12%.. which is good, but not great.
14/ for me this is a watch and wait.. I’m sold on the business and management. But valuation isn’t quite there. If this ever traded below 1.5x book it’s extremely appealing. Below 1.0-1.2x (like during covid) and it’s a big swing, load the truck situation.

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13 Sep
Thread/ $BABA news on the CCP breaking up Alipay lending business.

1/ The media and fintwit are again jumping on the news and pushing an overly negative spin on the impact of the CCP breaking up the Ant Group’s credit/lending business.
2/ it was announced that the CCP plans to break up Ant Group's Alipay and create a separate app for the loans business, the Financial Times reported.
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10 Sep
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$BABA returns on incremental invested capital (ROIIC) over past 9yrs is ~18%. Over the past 3yrs it was ~19%. Reinvestment rate over the same time periods was 130% & 102%. That has lead to intrinsic value compounding of 23% & 19% respectively
1/ With Alibaba Cloud requiring a lot of capital and just beginning to approach profitability, I have no reason to believe $BABA won't maintain a similar reinvestment rate & returns over the next 5 years..
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7 Sep
Thread/ $BABA & the value Alibaba Cloud

Alibaba cloud is arguably the most bullish aspect of the $BABA thesis even though it’s <10% of FY21 total revenues and not yet profitable. Currently they have ~40% of cloud market share in China.
1/ The cloud market in China is only in early stages of development. They are approximately 5-6 years behind the US if they can replicate the same growth trends that a company like $AMZN has been able to achieve with AWS.
2/ the US and Chinese cloud market is very different and not a perfect comparison. But $AMZN & $BABA are the dominant players in each market so I will make some comparisons throughout the thread.
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5 Sep
Thread/ the Israeli micro-cap version of $V & $MA

$SHVA operates payments systems for debit cards and mobile payments (Apple & Google pay) in Israel. If it traded on any major exchange would likely be >2x the current price.
1/ first note is that $V & $MA are not competition. They don’t compete in the market and actually own ~10% of $SHVA shares each. The company was founded by Israeli banks.
2/ Shares are very illiquid. Large share holders such as the banks, Visa & MasterCard own ~60% of the company. The illiquidity is the main reason the company trades and such low multiples. Trading on Tel Aviv stock exchange doesn’t help either.
Read 6 tweets
3 Sep
Thread/ $BABA recently announced a 100B RMB contribution to common prosperity in China. The equivalent of $15.5B (USD).

Here is a bit of a deeper look and the impact in may have on Alibaba…
1/ firstly, I want to clarify the wording that was used. The $15B would be “an investment in science and technology to support small and medium-sized companies to enter the global market, increase employment rates and help reduce inequality between urban and rural digital life”
2/ $BABA will spread the money between 10 initiatives over the next 4-5 years. Unlike $TCEHY who did not give a time frame on their contribution, Alibaba have an end date of 2025. Both of the tech giants pledged the same ~$15.5B amount.
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3 Sep
Thread/ My Portfolio.

As of May, 2020 I decided to switch from index investing into stock picking with the hopes of out performing the market.

Cumulative return - 70%
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s&p500 since May, 2020 - 55%
s&p500 YTD - 23%
1/ I have outperformed the s&p500 since inception by 1500bps and YTD I am lagging by just 100bps.

Usually I benchmark against $VDHG which is a globally diversified ETF in Aus. However the S&P500 has performed better and I thought it would be a better comparison for fintwit..
2/ My current portfolio:
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