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KBW downgrades Malvern after 'surprising' capital raise

Downgrades

Keefe Bruyette & Woods analyst Collyn Gilbert lowered her rating on Malvern Bancorp Inc. to "market perform" following what she called the bank's "surprising" capital raise in an Oct. 4 note.

The bank priced a $25 million public offering of 1,190,477 common shares at $21 each for net proceeds of about $23.4 million. It said the net proceeds will be used to increase capital structure, fund future organic growth, for working capital and other general corporate purposes. A portion may also be used for future acquisitions.

Gilbert said the offering price equates to a 12.3% discount from the pre-announcement share price and 128% of the bank's tangible book value. Gilbert estimated that the total offering will bring in net proceeds of $27.2 million from 1.4 million shares issued if underwriters exercise the 15% green shoe option.

The offering caused her to revisit her earnings per share estimates, but she wrote that she was "somewhat perplexed" by the timing of the raise. Gilbert said Malvern already has a "robust capital position" that it could work down to more normalized levels and expand its multiples. This capital raise also extends any timeline the bank might have for a sale.

"Although that this capital raise was not indicated to be regulator-induced, we draw caution to the company's robust [commercial real estate] growth expectations, which could serve to further pressure its core funding/loan to deposit ratio," Gilbert wrote.

These factors led Gilbert to lower the price target to $23 from $29 and the rating to "market perform" from "outperform." Gilbert adjusted the full-year 2019 EPS estimate to $1.63 from $1.76 and adjusted the full-year 2020 EPS estimate to $1.89 from $1.96.