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First Seacoast Bancorp: Attractive Valuation And Upside

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Background

Our favourite assemblage is nan organization slope & thrift space. This conception often provides uniquely charismatic risk-reward opportunities, specifically, equities pinch inexpensive valuations paired pinch catalysts to summation shareholder value.

The perfect campaigner is simply a slope trading below tangible book value, pinch a patient in installments portfolio and overcapitalized equilibrium sheet.

Our newest thought is First Seacoast Bancorp, Inc (FSEA).

Introduction

First Seacoast Bancorp is nan holding institution for First Seacoast Bank. Founded successful 1890, nan slope is headquartered successful Dover, New Hampshire, and maintains 4 further branch offices, arsenic illustrated below.

Map

SEC filings

FSEA operates nan accepted organization slope business exemplary - attracting unit deposits from nan wide nationalist (with a attraction connected nan section area) and utilizing those costs to originate loans secured by residential and nonresidential existent estate.

With astir $550 cardinal successful assets, FSEA maintains an overcapitalized equilibrium expanse (equity to assets of 13%) and charismatic in installments metrics.

At $10.28 per share, nan banal trades astatine only 72% of tangible book worth (a proxy for liquidation value).

Why nan Valuation Disconnect?

About 4 weeks ago, connected January 19, FSEA announced nan completion of its communal to banal transition.

First Seacoast Bancorp, Inc. (Nasdaq: FSEA), nan caller holding institution for First Seacoast Bank, announced that nan conversion of First Seacoast Bancorp, MHC from communal to banal shape and nan related banal offering by First Seacoast Bancorp, Inc. closed pursuing nan adjacent of business today. First Seacoast Bancorp, Inc.'s communal banal is expected to statesman trading connected nan Nasdaq Capital Market nether nan trading awesome "FSEA" connected January 20, 2023.

As a consequence of nan subscription offering, nan organization offering and nan syndicated organization offering, First Seacoast Bancorp, Inc. sold a full of 2,805,000 shares of its communal banal astatine a value of $10.00 per share, which includes 224,400 shares sold to First Seacoast Bank's Employee Stock Ownership Plan.

As portion of nan conversion transaction, each outstanding stock of First Seacoast Bancorp communal banal owned by nan nationalist stockholders of First Seacoast Bancorp (stockholders different than First Seacoast Bancorp, MHC) arsenic of nan closing day was converted into shares of First Seacoast Bancorp, Inc. communal banal based connected an speech ratio of 0.8358 shares of First Seacoast Bancorp, Inc. communal banal for each stock of First Seacoast Bancorp communal stock. Cash was issued successful lieu of a fractional stock of First Seacoast Bancorp, Inc. communal banal based connected nan offering value of $10.00 per share.

Upon nan completion of nan conversion transaction, First Seacoast Bancorp, Inc. has astir 5,077,492 shares of communal banal outstanding earlier accommodation for fractional shares.

Given nan comparatively mini marketplace headdress and caller transformation, FSEA is flying nether nan radar. In addition, nan institution has not yet provided 4th fourth earnings. The deficiency of reporting post-transaction hinders nan stock's expertise to surface accurately connected respective of nan celebrated websites.

Our Thesis: Catalysts, Valuation & Risks

Releasing 4th fourth results (with nan updated equilibrium expanse and stock count) will astatine slightest put FSEA connected nan map.

More importantly, arsenic mentioned above, FSEA is wildly overcapitalized. And nan important liquidity is cardinal to driving shareholder worth arsenic it provides nan wherewithal to ramp indebtedness growth, salary dividends, and repurchase shares.

Medium Term Perspective

Over nan adjacent 12-18 months, we expect nan institution to statesman repurchasing shares. Trading beneath tangible book value, each stock repurchased will beryllium instantly accretive.

Subsequently, arsenic nan spread betwixt nan banal value and tangible book worth closes, nan slope is apt to rumor a modest, recurring, quarterly dividend, attracting a full caller group of income-hungry investors.

The operation of dividends, buybacks, and mean indebtedness maturation has nan imaginable to supply a full return of 20-30% complete nan adjacent 24 months.

Longer Term Perspective

With a 3-5 twelvemonth finance horizon, nan return imaginable looks moreover better.

Although by nary intends a guarantee, we expect FSEA to travel nan crippled scheme of truthful galore different shareholder-friendly, demutualized banks. After flexing nan equilibrium expanse (conservatively increasing organically while distributing a humble dividend and consistently repurchasing shares beneath tangible book value), nan slope will go a takeover candidate. As a reminder, demutualized banks must hold 3 years aft nan conversion day to waste nan business.

At that point, successful January 2026, FSEA will beryllium eligible to beryllium acquired, a reasonably emblematic result for demutualized banks. For an acquirer, FSEA offers a value portfolio and an charismatic footprint successful New Hampshire's southeastern market.

Historically, nan mean thrift is acquired astatine 120%-140% of tangible book value.

To beryllium conservative, we typically exemplary an exit aggregate of 120% of tangible book value. In this case, we person targeted a tangible book worth of ~$15 per stock successful December 2026, indicating an acquisition value of ~$19.50 per stock aliases a ~90% return complete nan adjacent ~4 years.

Primary Risks

Potential risks to our thesis include, but are not constricted to:

  • Quality of nan indebtedness portfolio deteriorates. As a mini thrift, FSEA is importantly exposed to nan economical conditions wrong its location footprint.
  • Leadership changes people and elects to clasp excess superior versus returning to shareholders via dividends and buybacks.
  • Material alteration successful nan section competitory situation could slow maturation aliases trim profitability.

Conclusion

Despite a beardown superior position and charismatic in installments metrics, FSEA trades astatine conscionable 72% of tangible book value.

Community Bank & Thrift Comp Table

Hemlock Partners; SEC filings

We judge guidance will proceed to travel nan proven, shareholder-friendly "thrift crippled plan" which includes blimpish integrated growth, dividends, prudent buybacks, and yet a sale.

Although location are nary guarantees successful nan equity market, we position FSEA arsenic a debased consequence holding, which conservatively offers full return imaginable of ~90% complete nan adjacent 4-5 years.

Editor's Note: This article covers 1 aliases much microcap stocks. Please beryllium alert of nan risks associated pinch these stocks.

This article was written by

Hemlock Partners floor plan picture

With a worth lens, Hemlock Partners ("Hemlock") is dedicated to uncovering nan market's champion finance opportunities. Our squad brings a common-sense attack to a marketplace which often trades connected an irrational greed-and-fear cycle. We position this predictable shape not arsenic a challenge, but an opportunity. Hemlock's Asset-Rich Investment Service is designed specifically for individual investors pinch a semipermanent finance horizon. The cornerstone of nan work is to get coagulated companies astatine bargain prices. These aureate occurrences originate erstwhile a company’s stock value trades astatine a melodramatic discount to nan firm’s intrinsic value, and moreover better, beneath its liquidation value. From clip to time, Hemlock will besides selectively short a information which appears dramatically mispriced fixed our proprietary investigation and expertise. Opinions expressed present are reflective of nan Hemlock squad arsenic a whole.

Disclosure: I/we person a beneficial agelong position successful nan shares of FSEA either done banal ownership, options, aliases different derivatives. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Additional disclosure: The accusation contained connected this article is not and should not beryllium construed arsenic finance advice, and does not purport to beryllium and does not definitive immoderate sentiment arsenic to nan value astatine which nan securities of immoderate institution whitethorn waste and acquisition astatine immoderate time. The accusation and opinions provided herein should not beryllium taken arsenic circumstantial proposal connected nan merits of immoderate finance decision. Investors should make their ain decisions regarding nan prospects of immoderate institution discussed herein based connected specified investors’ ain reappraisal of publically disposable accusation and should not trust connected nan accusation contained herein.

The accusation contained successful this article has been prepared based connected publically disposable accusation and proprietary research. The writer does not guarantee nan accuracy aliases completeness of nan accusation provided successful this document. All statements and expressions herein are nan sole sentiment of nan writer and are taxable to alteration without notice.

Any projections, marketplace outlooks aliases estimates herein are forward-looking statements and are based upon definite assumptions and should not beryllium construed to beryllium suggestive of nan existent events that will occur. Other events that were not taken into relationship whitethorn hap and whitethorn importantly impact nan returns aliases capacity of nan securities discussed herein. Except wherever different indicated, nan accusation provided herein is based connected matters arsenic they beryllium arsenic of nan day of mentation and not arsenic of immoderate early date, and nan writer undertakes nary responsibility to correct, update aliases revise nan accusation successful this archive aliases to different supply immoderate further materials.

Neither nan writer nor immoderate of its affiliates accepts immoderate liability whatsoever for immoderate nonstop aliases consequential nonaccomplishment howsoever arising, straight aliases indirectly, from immoderate usage of nan accusation contained herein. In addition, thing presented herein shall represent an connection to waste aliases nan inducement of immoderate connection to bargain immoderate security.

Editor: Naga



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