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American Capital, Ltd. Message Board

  • lenyw lenyw Jun 20, 2013 5:04 PM Flag

    How about a discussion with regards to ACAS's Earnings Growth

    Practically all the talk here is on NAV with little or any regarding Earnings Growth, specifically Operating Income. The reason Zack's downgraded ACAS from Market Outperform to Neutral is because they don't growth in Operating Income. The companies ACAS owns are not generating growth in dividend or interest income for ACAS. The only real growth we've seen is through fees generated by ACAM. And with the sell-off in AGNC and MTGE their respective Book Values have declined and will have a negative affect on those management fees, obviously. Also, last quarter saw an uptick in non-accruing loans. So management talks about all the debt that has been reduced, but I don't seem to recall anything said with regards to Earnings Growth. Buying back shares doesn't increase aggregate growth in dollar income. And the vast majority of the increase in NAV has been from reversal of unrealized losses of capital. But then if the Market slides like it has been lately the value of shares (equity) that ACAS has in the companies invested in will reduce causing more losses for ACAS. I guess that's good if your pro-growth in NOL's.

    I think ACAS has lost it's luster in the investment community which expected the company to have reinstated a dividend of some sort by now. The NAV game has lost the impetuous it once had. Otherwise the SP would have climbed after the first quarter earnings. But it sold off because of the drop in Operating Income. I see a bounce back due to being oversold but the keys to new highs will be Revenue Growth/and or reinstatement of a Dividend. JMHO

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    • I must not understand almost anything. I do not see things working the way you have described and I am stumped.

      My understanding is: ACAS earns money via lending, via fees, and returns in profits from it equity holdings(I cannot think of anything else) This earning goes against its expenses. What is left over if they don't have a loss, and they have not had a loss in a while is my understanding, they use the profits to reduce debt(which my understanding is they are now where they want to be debt wise) they use profits to buy back shares and they use profits to fund other opportunities. It is not because the companies ACAS owns that there are no dividends; it is a choice to repair the damages caused in 2007-2009 which has lifted the NAV or Book Value.

      I agree that ACAS has lost some luster. But the investment community is about making money and normally the investment community uplifts companies after they have recovered. When Apple was 32 and 100 everyone told me to stay out of Apple and when it was 600 and more they said get in. I believe when the dividend is restored we will start looking toward the end of the stock growth, though I believe that as the dividend is restored it will move toward and a little above book. JMHO

      Good luck to you.

      Sentiment: Buy

    • You are correct that earnings growth is an issue. However, they have so much "dry powder", earnings growth should accelerate in the future. But frankly, when you can add to book value per share by share buybacks in an amount equal to an immediate IRR of 35%, which would be extremely hard to achieve with an investment, no wonder they have taken advantage of the book value discount with their cash. Also, remember, many of their portfolio companies are not valued by stock market action, but rather their EBITDA, which is probably as sound as ever. Further, the decline in book value of AGNC and MTGE does NOT reduce their fees until and unless those declines become realized losses. Unrealized losses are specifically excluded from the calculation of those fees.

    • The underlying companies could be doing just fine they just aren't paying any divies to acas thus no operating income. The performance must be improving due to the fact that the valuations of the companies are appreciating. They also don't have the interest rate risk that many bdc's with lots of debt have. I guess ACAS is just going down due to AGNC and MTGE due to their bv, but in reality the fees they receive wont change much. Oh well.

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