Intrinsic Value Popular Capital Trust II PFD GTD 6.125% (BPOPM)

• Previous Close: $25.48
• Intrinsic Value: $192.31
• Upside potential: +655%

Stock Valuation Context

Business Model And Market Position

Popular Capital Trust II is a subsidiary of Popular, Inc., a leading financial services provider in Puerto Rico and the U.S. mainland. The trust primarily issues preferred securities, such as the 6.125% Non-Cumulative Monthly Income Preferred Securities, Series G, which are guaranteed by Popular, Inc. These securities provide investors with fixed-income returns, leveraging the parent company’s strong regional banking presence and creditworthiness. The trust operates within the broader financial sector, catering to income-focused investors seeking stable, dividend-paying instruments. Its market position is reinforced by Popular, Inc.’s established footprint in Puerto Rico, where it holds a dominant share in retail and commercial banking. The trust’s structure aligns with regulatory capital requirements, offering a hybrid financing solution that benefits both the issuer and investors. This niche focus on preferred securities distinguishes it within the fixed-income market, appealing to conservative portfolios.

Revenue Profitability And Efficiency

In FY 2021, Popular Capital Trust II reported revenue of $2.12 billion, with net income reaching $934.9 million, reflecting strong profitability. The diluted EPS stood at $9.63, indicating efficient earnings distribution. Operating cash flow was robust at $784.8 million, though capital expenditures were negligible, suggesting a capital-light operational model. The trust’s financial performance is closely tied to the parent company’s stability and dividend-paying capacity.

Earnings Power And Capital Efficiency

The trust’s earnings power is underscored by its $934.9 million net income and $9.63 diluted EPS, demonstrating effective capital deployment. With no reported capital expenditures, the trust maintains high capital efficiency, focusing on distributing returns to investors rather than reinvesting in physical assets. This aligns with its role as a preferred securities issuer, prioritizing income generation over growth investments.

Balance Sheet And Financial Health

As of FY 2021, the trust held $7.5 million in cash and equivalents, with total debt at $71.4 million. The balance sheet reflects a conservative leverage profile, supported by the parent company’s guarantee. The absence of significant capital expenditures further underscores financial stability, with resources primarily allocated to dividend payments and debt servicing.

Growth Trends And Dividend Policy

The trust’s growth is inherently linked to the performance of Popular, Inc., with limited organic expansion opportunities. Its dividend policy remains consistent, distributing $1.46 per share annually, appealing to income-focused investors. The fixed-income nature of its securities suggests steady, predictable returns rather than aggressive growth, aligning with its conservative investor base.

Valuation And Market Expectations

The trust’s valuation is driven by its fixed-income characteristics, with the 6.125% dividend yield serving as a key metric. Market expectations likely center on stability and reliable payouts, given its parent company’s strong regional presence. Investors may prioritize yield over capital appreciation, reflecting the trust’s role in income portfolios.

Strategic Advantages And Outlook

Popular Capital Trust II benefits from the credit strength and regional dominance of Popular, Inc., providing a stable foundation for its preferred securities. The outlook remains positive, contingent on the parent company’s financial health and macroeconomic conditions. Its strategic focus on income generation positions it well for conservative investors, though growth prospects are limited by its fixed-income mandate.

Sources

10-K filing, Popular, Inc. investor relations