First Mid-Illinois Bancshares Trading At Attractive Entry Point, DA Davidson Upgrades

First Mid-Illinois Bancshares, Inc. FMBH shares have declined 11 percent in the year-to-date period compared to the 2 percent gain for the Nasdaq Bank Index, an analyst at DA Davidson noted.

The Analyst

DA Davidson analyst Kevin Reevey upgraded First Mid-Illinois from Neutral to Buy, with a 12-18 month price target of $43.

The Thesis

First Mid-Illinois, which trades at a 1 percent discount to its peer group,  deserves a premium multiple, given its strong operating metrics and enhanced growth trajectory from the pending First BancTrust Corporation FIRT deal, Reevey said in a note.

Reevey estimates the First BancTrust deal to add 5.5 percent to First Mid-Illinois' 2019 earnings per share, which assumes the 28 percent cost savings the latter is envisaging is achievable. The doability of the cost savings target, according to Reevey, is due to the in-market nature of the deal and the management's proven acquisition experience.

DA Davidson assumes healthy organic period-end loan growth of about 6 percent for 2018, in line with the management guidance of 5-8 percent.

"Furthermore, FMBH remains on the M&A hunt, mainly for banks with attractive deposit franchises as well as banks in higher-growth markets to drive lending growth, mostly in the $400M-$1B asset size range," the firm said.

Reevey sees high-quality and low-cost deposit franchise to support loan growth, with 52 percent of its deposit base comprising of non-interest and interest-bearing checking accounts, and core deposits accounting for 85 percent of total deposits.

The Price Action

Shares of First Mid-Illinois are down over 7 percent over the past year.

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