Synchrony Financial (SYF) is one of the premier consumer financial services companies in the United States. It's the old GE Capital and is headquartered in Stamford, CT,.

Nineteen other companies are scheduled to IPO for the week of July 28, 2014.  The full IPO calendar is available at IPOpremium.

The manager and co-managers are Goldman Sachs, J.P. Morgan, Citi, Morgan Stanley, Barclays, BofA Merrill Lynch, Credit Suisse, Deutsche Bank.

The joint managers are BNP Paribas,  HSBC Corporation, Mizuho Securities, Mitsubishi UFJ Securities, RBC Capital Markets, RBS, Santander, SMBC Nikko, Societe Generale, Banca IMI, Blaylock & Partners, CastleOak Securities, Commerzbank Capital, Credit Agricole CIB, Fifth Third Securities, Guggenheim Securities, ING, Keefe Bruyette Woods, Lebenthal, Loop Capital Markets, Mischler Financial Group, Ramirez & Co., Inc, Williams Capital Group.   

SYF scheduled a $3.06 billion IPO with a market capitalization of $20.3 billion at a price range midpoint of $24 for Thursday, July 31, 2014 on the NYSE. SEC filings

Overview

SYF is one of the premier consumer financial services companies in the United States. It's the old GE Capital.

Q1 '14 earnings were $526 million, and dropped to an estimated $472 million in Q2 '14.

Valuation

Glossary

 

Valuation Ratios

Mrkt Cap (mm)

Price /Interest inc

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

Annualizing Q1 qtr

.

.

.

.

.

.

Synchrony Financial (SYF)

$20,335

1.7

9.7

2.2

2.6

15%

             

Compare Valuation Ratios

Mrkt Cap (mm)

Price /Interest inc

Price /Erngs

Price /BkVlue

Price /TanBV

Div yield

Santander Consumer USA Holdings (SC)

$6,691

1.3

20.7

2.3

2.4

3.0%

Ally Financial (ALLY)

$11,500

1.4

14.5

0.8

0.8

 
             

Conclusion

The rating is a buy.

Low P/E of 9.7.

Business

SYF is one of the premier consumer financial services companies in the United States. It's the old GE Capital.

SYF’s  roots in consumer finance trace back to 1932, and today SYF is the largest provider of private label credit cards in the United States based on purchase volume and receivables.

SYF provides a range of credit products through programs it has established with a diverse group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations and healthcare service providers, which SYF refer to as its “partners.”

Through its partners’ 329,000 locations across the United States and Canada, and their websites and mobile applications, SYF offers its customers a variety of credit products to finance the purchase of goods and services.

During 2013 and the first quarter of 2014, SYF financed $93.9 billion and $21.1 billion of purchase volume, respectively, and at March 31, 2014, SYF had $54.3 billion of loan receivables and 57.3 million active accounts.

SYF’s active accounts represent a geographically diverse group of both consumers and businesses, with an average FICO score of 710 for consumer active accounts at March 31, 2014. However, for Q1 '14 the loan loss ratio was 26%.

History

SYF’s business has been profitable and resilient, including through the recent U.S. financial crisis and ensuing years.

For the year ended December 31, 2013, SYF had net earnings of $2.0 billion, representing a return on assets of 3.5%, and for the three months ended March 31, 2014, SYF had net earnings of $558 million, representing a return on assets of 3.9%.

SYF’s business benefits from longstanding and collaborative relationships with its partners, including some of the nation’s leading retailers and manufacturers with well-known consumer brands, such as Lowe’s, Walmart, Amazon and Ethan Allen.

SYF believes its partner-centric business model has been successful because it aligns its interests with those of our partners and provides substantial value to both its partners and its customers.

SYF’s partners promote its credit products because they generate increased sales and strengthen customer loyalty.

SYF’s customers benefit from instant access to credit, discounts and promotional offers. SYF seeks to differentiate ourselves through deep partner integration and its extensive marketing expertise.

SYF has omni-channel (in-store, online and mobile) technology and marketing capabilities, which allows it to offer and deliver its credit products instantly to customers across multiple channels.

Purchase volume

For example, the purchase volume in SYF’s Retail Card platform from its online and mobile channels increased by $3.0 billion, or 39.5%, from $7.6 billion in 2011 to $10.6 billion in 2013.

SYF offers its credit products primarily through its wholly-owned subsidiary, the Bank.

Through the Bank, SYF offers, directly to retail and commercial customers, a range of deposit products insured by the FDIC, including certificates of deposit, IRAs, money market accounts and savings accounts, under its Optimizer+Plus brand. SYF also takes deposits at the Bank through third-party securities brokerage firms that offer its FDIC-insured deposit products to their customers.

SYF is expanding its online direct banking operations to increase its deposit base as a source of stable and diversified low cost funding for its credit activities.

SYF had $27.4 billion in deposits at March 31, 2014.

Dividend Policy

In connection with its application to the Federal Reserve Board described above and the Separation, SYF expects to continue to increase its capital and liquidity levels by, among other things, retaining net earnings and not paying a dividend or returning capital through stock repurchases until its application to the Federal Reserve Board is approved.

Thereafter, SYF’s board of directors intends to consider a policy for paying dividends and may consider stock repurchases, in each case consistent with maintaining capital ratios well in excess of minimum regulatory requirements.

The declaration and amount of any future dividends to holders of its common stock or stock repurchases will be at the discretion of its board of directors and will depend on many factors, including the financial condition, earnings, capital and liquidity requirements of SYF and the Bank, applicable regulatory restrictions (including any restrictions that may be imposed in connection with the Separation), corporate law and contractual restrictions (including restrictions contained in the New Bank Term Loan Facility and the New GECC Term Loan Facility) and other factors that its board of directors deems relevant.

Intellectual Property

Following this offering, SYF is launching its new brand, “Synchrony,” and expect to spend significant amounts over the next few years promoting its new brand.

This could negatively impact earnngs.

SYF has two patents for proprietary methods related to its Dual Cards. The patents were issued in 2005 and 2010 and expire in 2023 and 2027, respectively.

SYF recently filed trademark applications to protect its new name in the United States and certain other countries, and the applications are pending.

Competition

SYF’s primary competitors for partners include major financial institutions such as Alliance Data, American Express, Capital One, Chase, Citibank, TD Bank and Wells Fargo, and to a lesser extent, potential partners’ own in-house financing capabilities.

SYF competes for partners on the basis of a number of factors, including program financial and other terms, underwriting standards, marketing expertise, service levels, product and service offerings (including incentive and loyalty programs), technological capabilities and integration, brand and reputation.

In addition, some of its competitors for partners have a business model that allows for their partners to manage underwriting (e.g., new account approval), customer service and collections, and other core banking responsibilities that SYF retains.

SYF also competes for customer usage of its products. Consumer credit provided, and credit card payments made, using SYF’s cards constitute only a small percentage of overall consumer credit provided and credit card payments in the United States.

Consumers have numerous financing and payment options available to them.

As a form of payment, SYF’s products compete with cash, checks, debit cards, Visa and MasterCard credit cards, as well as American Express, Discover Card, other private-label card brands, and, to a certain extent prepaid cards. SYF also competes with non-traditional providers such as PayPal.

5% stockholders pre-IPO

GE Consumer Finance, Inc. 100%

Use of proceeds

SYF intends to use the $2.9 billion in proceeds from its IPO as follows:

SYF intends to use the net proceeds from this offering, together with the net proceeds from borrowings under the New Bank Term Loan Facility and the New GECC Term Loan Facility, to repay all of its related party debt owed to GECC and its affiliates that is outstanding on the date of the closing of this offering (the “Outstanding Related Party Debt”), to increase its capital, to invest in liquid assets to increase the size of its liquidity portfolio, to pay fees and expenses related to the Transactions and for such additional uses as SYF may determine in the future. The weighted average interest rate on the Outstanding Related Party Debt for the year ended December 31, 2013 and the three months ended March 31, 2014 was 1.7% and 2.3% per annum, respectively.