Friday File: IPO’s, Conversions, and the Watchlist (and one sale)

I sold an income investment, what are we looking for in the weeks ahead?

By Travis Johnson, Stock Gumshoe, March 24, 2017

For those who were interested in the spiel about Chris Mayer’s special “Skype Call” that I wrote about earlier in the week, I thought I’d loop around on that — yes, he was talking up the potential of mutual conversions (he usually calls them “thrift conversions”), and I actually listened to most of the presentation so I can clarify that he’s not primarily talking about conversions that have already happened (though he might like those, too), he’s talking about recommending one that’s about to happen… which must mean, given the relative paucity of the conversion pipeline, that he’s recommending that readers buy in to PCSB Financial when it IPOs.

I’ll be watching for that PCSB Financial IPO, which could happen next week and will almost certainly happen within a month or so, and I may well invest in that one, too, if it is available at a reasonable price.

Unfortunately, lots of other folks are watching for it, too — so it may well not trade at a price I’m willing to pay on that first day. This is probably the most hotly anticipated mutual conversion of the last few years (because it’s a relatively large bank in a wealthy area of the country, which makes it likely to be a very attractive buyout candidate three years hence, and the offering is pretty big at a few hundred million dollars, so it can absorb some institutional money).

It would not be surprising if this one pops by a huge amount on the IPO day — all mutual conversions pop, pretty much, since it’s “free money” otherwise (the conversion price is always, in my experience, well under the pro-rata book value), but this could rise by 40, 50, or even 100% fairly quickly, so being mindful of the price will be important. It’s a no-brainer to buy if you were able to get it at the IPO price or somehow get an allocation of IPO shares (if there are any left after employees and accountholders convert), but it’s not necessarily a no-brainer if the price pops to 1.5X book or something wacky like that.

I wrote some about that in response to the questions about Chris Mayer’s latest pitch in a follow-up comment on that article, and I will say that reviewing those options makes me want to redouble my efforts on these little banks. They’re ...

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