Banking upon Acquisitions Synovus ...

Banking upon Acquisitions

Synovus is a financial services company operating a total of 34 community banks in: Georgia (21) Alabama (7) Florida (5) and toward the south Carolina (1). In addition, Synovus have a title tos an 80.8% interest in Total theory Services Inc.-one of the world's largest credit card processing companies (see side bar onward page 25). Synovus also confesss a full-service brokerage firm and a mortgage corporation. At year finis 1995 Synovus had approximately $8 billion in assets.

The company was originally featured as a Stock to investigation in the January/February 1992 issue of Canadian Shareowner when the stock was trading in the $10 range (adjusted for couple 3-for2 stock splits).

STUDYING A STOCK

There is general agreement among stock market participants that: (1) across the longer term, growth in share price is 'driven' by means of growth in earnings per share ("EPS"); and, (2) from one side of to the other the longer term, growth in EP is 'driven' by means of growth in revenues. Investors use the Stock Selection Guide to subject of attention these 'drivers' of share price to help answer three questions:

1 What coming events share price might be produc through future revenue and EPS growth?

2 Does this to come price provide an adequate rate of turn back for the risk?

3 Is the stock's instant price too high?

QUESTION #I coming events SHARE PRICE FROM FUTURE product IN REVENUES AND EPS?

Estimated High Price in 2000

A high price for Synovus' for the use of all voting shares ("SNV," NYSE) is obtained by the agency of first estimating the company's EP in 2000 and then multiplying this EP number by the agency of an estimated Price Earnings ("PIE") ratio for that year. However, because EP cannot be reckon uponed to grow faster than returns over the longer term, it is advisable to estimate income growth before estimating EPS produce

(a) Estimating Revenue germination to 2000. As indicated in the accompanying Guide, receiptss grew at a consistent compose rate of 20% per year from one side of to the other the last 10 years1. This expansion is attributed largely to acquisitions of community banks in the southeastern United States. following to joining the Synovus cluster acquired banks (usually the first or secondary largest in their market area) retain their local identity and typically increase their market share.

Future shooting is expected from expanding existing operations, additional bank acquisitions and continued germination at Total System Services. In the absence of unusual competitive threats to Synovus' businesses, the I estimates project revenues to grow through approximately 20% per year between 1995 and 2000 to $16 billion.

(b) Controlling Non-Interest costs Throughout the study period, Synovus' Operating Profit Margi2 ("OPM") has generally been about 72% indicating that development in personnel and facilities outlays has kept in line with income growth.

(c) Controlling Bad Loans. For 1995 commercial loans showed approximately two-thirds of total loans outstanding. Since 1991 Synovus' ratio of unadulterated loans charged off during the year to gin loans outstanding has declined from 078% to 038% During the same period, the reservation for loan losses has generally been at the 15% even

(d) Return on public Equity. The earlier indicated receipts growth-accompanied by proportionate cost increases and a stable loan los experience and capital structure3-has increased profits and the company's rate of return4 forward common equity from 15% to 19% (the company's target turn back is 20%).

(e) EP in 2000 The EP vegetation illustrated in the accompanying Guide is the natural ensue of Synovus' increased profitability. During the last 10 years EP produce averaged 15% per year; 19% during the last five years; and, 23% yearover-year first quarter 1996

Historically, Total has contributed 20%-30% of Synovus' earnings. lately because of particularly high shooting

STOCK TRACKING DATA

After deciding to either purchase or "follow" a stock, an investor should make a commitment to regularly monitor its earnings by share ("EPS") progress. The Stock Tracking Guide (described in Chapter 8 of the Stock Selection Manual) provides a sensible approach for tracking a stock's progres The Stock Tracking Guide assists an investor in monitoring a stock's motion between the 'Buy', 'Maybe' and 'Sell' belts defined by a Stock Selection Guide.

TRACKING RATIO

The principal calculation contained in a Stock Tracking Guide for a stock is its Tracking Ratio. This ratio is calculated on dividing a stock's recent PIE ratio according to its average PIE ratio during the last five fiscal years.

The new PIE ratio is calculated by way of dividing the stock's recent price according to its trailing four quarters of EP The average PIE during the last five fiscal years is available from Part 3 (Cell 7) of a recently-complet Stock Selection Guide for the stock.

A Tracking Ratio of les (more) than 10 indicates that the stock's latter PIE ratio is low (high) in relation to historical prices paid for the company's EP

The Tracking Ratio for each Stock to application of mind during the past five years is contained in the table to the left The latest fiscal quarter (i.e. Q1 Q2 Q3 Q4) deliberateed in computing the trailing four quarters of EP (used to calculate the newly come PIE ratio) is also reported.