Tim Eriksen of Eriksen Capital Management presented his in-depth investment thesis on Customers Bancorp (NYSE: CUBI) at Best Ideas 2018.
Customers Bancorp is a regional bank holding company for Customers Bank that operates fifteen branches and offices from Boston to Philadelphia. The bank was founded in 1997 and has grown to nearly $10 billion in assets. Customers has a low efficiency ratio (operating expense divided by net interest income plus non-interest income), i.e., high operating margins. The bank trades at 13x trailing earnings and less than 1.2 times book value. Recent results have been negatively impacted by the BankMobile division, which Customers expects to spin off in 2018, and management’s decision to end 2017 below $10 billion in order to meet small issuer exemption rules. BankMobile has been losing ~$12 million annually, or $0.40 per share. The spinoff is projected to be worth about $3.50 per share, leaving the remaining bank trading at an attractive valuation. Post-spinoff, Tim estimates the bank stub at $22.50 to have an earnings run rate in excess of $3 per share, inclusive of the lower U.S. corporate tax rate. Based on an ability to grow assets and profits, Tim believes just over 7x earnings is attractive. His target price for the stock by the end of 2018 is $45 per share, or 13x his 2019 EPS estimate of $3.50 per share.
About the instructor:
Tim Eriksen is the President of Eriksen Capital Management, LLC. Since 2006, he has been the portfolio manager of Cedar Creek Partners LLC, a private fund focused primarily on micro-cap stocks. Since 2016 he has been the CEO of Solitron Devices Inc. (SODI), a small publicly traded company. Mr. Eriksen has a Master of Business Administration from Texas A&M University, and Bachelor of Arts degrees in History and in Political Studies from The Master’s University. From 2004 to 2005, Mr. Eriksen worked as an independent contractor, primarily for Walker’s Manual Inc., a publisher of investment books and newsletters that focuses on unlisted stocks, micro-cap stocks and community bank stocks. From 1999 to 2004 Mr. Eriksen was employed by Peter Kiewit & Sons, one of the country’s largest general contractors.
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