We came across a bullish thesis on William Penn Bancorp (WMPN) on ValueInvestorsClub by CatalystCapital. In this article we will summarize the bulls’ thesis on WMPN. William Penn Bancorp shares were trading at $11.87 when this thesis was published, vs. closing price of $11.65 as of Sept 10.
A professional banker inside a retail bank branch, providing services to a customer.
William Penn Bancorp (WMPN), a Pennsylvania-based thrift, represents a compelling investment opportunity due to its unique position in a consolidating market. WMPN completed its second-step conversion to a publicly traded company in March 2021, with shares initially priced at $10. Now, with its three-year post-IPO “cool-off” period ending in March 2024, the bank is poised for potential acquisition. This is particularly relevant given the ongoing M&A activity in the overbanked Pennsylvania market, where regional banks face pressure to either grow or be acquired. Analysts project a 34-65% upside from WMPN’s current market price, with downside risk mitigated by the bank’s trading below its tangible book value of $12.80 and a clean balance sheet.
WMPN’s management appears to be following a classic “thrift conversion” strategy, focused on enhancing shareholder value through potential sale rather than organic growth. Thrift banks like WMPN, characterized by low returns on equity (ROE) and limited growth prospects, typically attract acquisition interest due to their low-cost deposits and the potential for cost synergies. Instead of expanding their loan book, WMPN has aggressively repurchased shares, buying back more than half of its public float at prices below its tangible book value. This approach not only improves ROEs but also increases the potential acquisition premium for remaining shareholders.
Management’s incentives further align with the prospect of a sale. Directors and officers hold 8.1% of the bank, and the Employee Stock Ownership Plan (ESOP) holds another 9.7%. Additionally, management was granted options in 2022 with an exercise price of $11.61 that vest upon a change of control, underscoring their motivation for a sale. The CEO and other senior executives stand to gain substantial payouts upon a successful acquisition, making a sale an attractive exit strategy. The leadership team’s age also suggests that they may be preparing for retirement, with a bank sale offering a lucrative exit.
The macro environment supports this potential. Pennsylvania has seen consistent banking consolidation over the past decades, driven by scale advantages in a crowded market. Pre-2023, bank acquisitions in Pennsylvania occurred at an average of 1.5 times tangible book value; recent deals have been lower due to market disruptions. However, WMPN’s pristine credit quality and low-cost deposit base make it an attractive acquisition target, potentially fetching a price of 1.3-1.6 times its tangible book value. With strong fundamentals, strategic positioning, and motivated management, WMPN is well-positioned to benefit from renewed M&A activity, providing significant upside potential for investors.
William Penn Bancorp is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 3 hedge fund portfolios held WMPN at the end of the second quarter which was 4 in the previous quarter. While we acknowledge the potential of WMPN as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as WMPN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
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