Expansion Into St Louis And Kansas City Will Strengthen Future Prospects

Key Takeaways

• Revenue growth is driven by increased deposits, expanded loan base, and strategic market expansions in St. Louis and Kansas City.
  
• Performance improvements and potential M&A activity are set to enhance operational efficiency and boost earnings and shareholder value.
  
• Increased cash balances and loan risks from higher interest rates and agriculture challenges may pressure profitability despite plans to expand in commercial real estate.

Catalysts

Operates as the bank holding company for Southern Bank that provides banking and financial services to individuals and corporate customers in the United States.

• Southern Missouri Bancorp has experienced substantial growth in deposits, which increased by $225 million year-over-year and contributes to an increased revenue potential through a larger base of less costly, interest-bearing liabilities.
  
• The bank has expanded its loan base significantly, with a $295 million increase in gross loan balances year-over-year, promoting future revenue growth as these loans generate interest income.
  
• The ongoing Performance Improvement Initiative is expected to enhance operational efficiency over time, potentially increasing net margins by reducing expenses and improving service delivery.
  
• Expansion into new markets in St. Louis and Kansas City, along with strategic hires in Wealth Management and Trust Services, is likely to drive future revenue growth through increased market penetration and diversified income streams.
  
• Potential consolidation in the banking sector, signaled by increased M&A conversations, could be a catalyst for growth in earnings and shareholder value if Southern Missouri Bancorp pursues strategic acquisitions or partnerships.

Southern Missouri Bancorp Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Southern Missouri Bancorp's revenue will grow by 8.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 31.0% today to 33.5% in 3 years time.
• Analysts expect earnings to reach $71.6 million (and earnings per share of $6.6) by about January 2028, up from $51.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.9x on those 2028 earnings, down from 12.9x today. This future PE is lower than the current PE for the US Banks industry at 12.3x.
• Analysts expect the number of shares outstanding to decline by 1.29% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.92%, as per the Simply Wall St company report.

Southern Missouri Bancorp Future Earnings Per Share Growth

Risks

• Net interest margin may come under pressure due to increased cash equivalent balances and seasonal deposit activity, potentially impacting net interest income.
  
• The bank expects slight increases in problem loans and net charge-offs due to sustained higher interest rates, which could affect earnings.
  
• Commodity price declines in 2024 pressured agricultural profitability, posing risks to revenue due to decreased loan repayments from agricultural customers.
  
• Noninterest income decreased by 4.3%, attributed to reduced gains on loan sales and interchange income, which may affect overall profitability.
  
• High CRE concentration at 306%, with plans to expand further, could present risks to earnings if market conditions tighten or assets do not perform as expected.

Valuation

• The analysts have a consensus price target of $72.0 for Southern Missouri Bancorp based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $214.0 million, earnings will come to $71.6 million, and it would be trading on a PE ratio of 11.9x, assuming you use a discount rate of 5.9%.
  
• Given the current share price of $59.08, the analyst's price target of $72.0 is 17.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.