Money Store Stock Offering a Hit

Money Store Inc. completed its secondary stock sale in the nick of time, getting the $122.1 million offering done just two days before Friday's market collapse.

The sale was "very successful," said Mike Diana, a specialty finance analyst at Bear, Stearns & Co., one of the underwriters in the offering.

"This was a 6.25 million-share offering and the 'green shoe' was exercised on top of that," he said, referring to a provision that allows the underwriters to sell up to 15% more shares than were offered.

As a sign of the demand for the offering, he pointed to the $2 a share rise in price following the sale. On Wednesday, the shares traded at $24 a share, near its 52-week high of $24.50 a share.

"This stock moved straight up after it was priced last week," said Frank Anderson, an analyst with Stephens Inc. "But with the selloff in the bond market Friday, financial stocks are not leading the market."

Indeed, Friday's selloff had caused a $1.38 decline in Money Store, to $22.75 a share. Still, the shares ended 75 cents a share higher for the week.

Buffeted in October by worries about rising consumer loan delinquencies, the Union, N.J.-based company's shares fell 28%, from $22.10 share - after accounting for a 5-for-2 stock split in December - to $15.05 in less than a week.

Since then, however, the shares have rebounded to new highs, largely on the basis of a 70% increase in fourth-quarter earnings.

The shares continued trading above the $21.50 a share offering price through Monday, when they closed at $23.

Samuel Liss, a managing director at CS First Boston in New York, said companies like Money Store will face funding pressures because of higher interest rates.

"You've got a situation where a ratchet up in the bond market can have an arguably more immediate impact on companies like the Money Store that originate and securitize," he said.

In particular, the company will have home equity loans in the pipeline that are priced at lower rates than would be offered following Friday's market decline. As a result, the company could face a temporary squeeze in net interest margins because of the higher funding costs.

But Mr. Liss said the company should benefit from its efforts to diversify its lending operations. As much as 80% of its loan originations used to come from home-equity loans, but today they include a growing mix of student loans, automobile loans and Small Business Administration-backed loans.

Mr. Liss estimates that these efforts should push earnings for 1996 as high as $1.30 a share, a 36.8% increase over the 95 cents earned during 1995.

Other analysts also have raised their earnings estimates following the offering. Mr. Diana raised his estimate for 1996 to $1.25 a share, from $1.04 a share. For 1997 he said earnings should reach $1.55 a share, up from an early estimate of $1.24 a share.

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