Corporate Communications Corp. Publication ---- All
February 18, 2003
Fremont General (NYSE)
Average Daily Vol.
General Corp. is a holding company, which owns
a commercial and industrial bank primarily located in
California. We continue to be attracted to Fremont
General as an undervalued financial institution.
The stock of Fremont General moved lower
in late December but has since rebounded. There were no
fundamental developments that accounted for this decline.
It appears that this price weakness was the result of
year-end tax selling. Since then, FMT has performed incredibly
well considering the fact that the DOW has declined over
1000 points in this same period. This leads us to believe
that FMT will be an out-performer, as soon as the market
rebounds in any meaningful way.
reasons for our attraction toward Fremont General are:
The company has earned $0.99
per share for the first nine months of 2002. We expect
the company to earn $0.38 per share for the fourth
quarter, resulting in full year earnings of $1.37.
The stock is presently selling at a 3.0x price/earnings
multiple. The normal P/E for a bank stock
is 8-10x, which would equate into a $10-$12 share
price for FMT.
Most impressive has
been the reduction in long-term debt. During
the first nine months the company has reduced long
term debt from $342 million to $270 million. The company
has stated that an additional $73 million of debt
will be paid down by June 30, 2003. This will bring
long-term debt down to a modest $200 million level.
As of September 30,
2002, Fremont General had a book value of $5.88 per
share and a current dividend of 1.8%. FMT has cash
of $2.27 per share.
Consequently, we believe that Fremont General is undervalued
and overlooked by the investment community. Technically
speaking, FMT has a current short position of 9.4 million
shares. Should FMT report reasonable earnings in a few
weeks (as expected), any significant short covering
will likely push its share price above our $8 target