Performance Project Fuels Growth As Critical Loans And M&A Transform Operations

Key Takeaways

• Strong loan growth and project improvements enhance operations, boost revenue, and improve net margins and long-term shareholder value.
  
• Anticipated rate cuts and optimized funding costs can positively impact net interest income, margins, and support M&A-driven growth opportunities.
  
• Pressure on profitability from credit loss provisions, noninterest expenses, and asset quality concerns could adversely affect Southern Missouri Bancorp's margins and earnings.

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.

• The ongoing performance improvement project is expected to enhance the bank's operations and revenues, which could improve net margins and long-term shareholder value.
  
• Strong loan growth, especially in construction, ag production lines, and 1-4 family loans, positions the bank for mid-single-digit loan growth, potentially boosting revenue and net interest income.
  
• The anticipated benefit from rate cuts, with a deposit beta expected to be higher than the loan beta, could positively impact net interest income and the net interest margin.
  
• The seasonal inflow of funds from agricultural customers and public units, along with the ability to lower brokered CD costs, may optimize the funding cost structure and enhance net margins.
  
• Potential for increased M&A activity due to improved regional bank valuations can provide strategic growth opportunities and earnings expansion.

Southern Missouri Bancorp Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Southern Missouri Bancorp's revenue will grow by 10.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 30.4% today to 32.1% in 3 years time.
• Analysts expect earnings to reach $70.5 million (and earnings per share of $6.64) by about October 2027, up from $49.2 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 10.8x on those 2027 earnings, down from 13.7x today. This future PE is lower than the current PE for the US Banks industry at 11.8x.
• Analysts expect the number of shares outstanding to decline by 1.97% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 5.8%, as per the Simply Wall St company report.

Southern Missouri Bancorp Future Earnings Per Share Growth

Risks

• Southern Missouri Bancorp faced pressure on profitability due to larger provisions for credit losses, increased noninterest expenses, and lower noninterest income, which could negatively impact net margins and earnings.
  
• There was an increase in nonperforming loans and loans past due, which raises concerns about asset quality and could affect future earnings.
  
• The bank has a high concentration of non-owner commercial real estate loans, which could pose a risk if there is a downturn in this sector and potentially impact earnings and asset quality.
  
• Fluctuations in agriculture production and commodity prices, along with increased input costs, could impact the bank's loan repayments and revenue from ag-related lending.
  
• The bank's reliance on brokered CDs, with significant amounts maturing soon, poses a liquidity risk if these cannot be renewed at favorable rates, potentially impacting net interest income and margins.

Valuation

• The analysts have a consensus price target of $64.33 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 2027, revenues will be $219.4 million, earnings will come to $70.5 million, and it would be trading on a PE ratio of 10.8x, assuming you use a discount rate of 5.8%.
  
• Given the current share price of $59.62, the analyst's price target of $64.33 is 7.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.