It is rare to find a company selling for below tangible book value that is also profitable, pays a dividend and even manages to grow a bit. Moreover, this small company has been around for 149 years. Ohio Valley Banc Corp. (OVBC, Financial) was established in 1872, currently operating 15 offices throughout Ohio and West Virginia.
The bank's headquarters are located Gallipolis, Ohio. The local bank, which has a market cap of $110 million, offers a blend of commercial and consumer banking services.
The bank separates its operating activities into two reportable segments, banking and consumer finance. The majority of its total revenue is derived from the banking segment. In addition to accepting deposits and making loans, the bank invests in U. S. government and agency obligations, interest-bearing deposits in other financial institutions and investments.
The following represents the composition of the company's loan portfolio as of Dec. 31.
Earnings and dividend
The following chart provides details on key metrics. The earnings yield is quite good at 11.6%. The bank pays a good dividend yield of 3.7%. Return on equity is also adequate at 9.3%.
The share price is below the book value per share and also below tangible book value per share. It has compounded book value at around 5% a year over the last decade.
Valuation
The following chart uses a median price-book ratio and median price-earnings ratio to compute valuation. Both median justified price metrics show that Ohio Valley Banc is over 30% undervalued.
The discounted cash flow calculation using the GuruFocus DCF calculator supports the above evaluation, indicating a wide margin of safety.
Finally, when buying banks, my rule of thumb is buy them when the price-earnings ratio is below the return on equity. Ohio Valley Banc meets this criteria.
Conclusion
Warren Buffett (Trades, Portfolio) once said, "I don't look to jump over seven-foot bars; I look around for one-foot bars that I can step over." Ohio Valley is the proverbial one-foot bar. It is difficult to lose money when you buy a company below tangible book value.
Wall Street does not follow such a small company; and it flies under the radar with little insitutional support. Sure, you likely won't get filthy rich buying this bank, but you won't get much poorer either. The bank should continue to deliver good mid-single-digit returns over the next few decades while keeping my capital safe. It deserves a place in the "non-speculative" part of my portfolio.
Disclosure: The author currently does now own shares of Ohio Valley Banc Corp., but is considering buying.
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
