Quarter seemed to come in about where one might expect
The older I get the less I think I know more than the market.
Overall I was pleased with the Q. I would rate it as somewhat quiet. It will be interesting to see how the market reacts. We had a pretty good runup the past few months. Even though the earnings miss was significant there were many positives as well.
I have come to looking at the discount to NAV through the following lense and would like to know what others think.
There really hasn't been any improvement in the NAV discount for a number of years. As the company has consolidated, this has continued to negatively impact earnings as one might suspect it would. I think it is a credit to managment that earnings remain positive and as strong as they are.
While the company touts improvement in NAV, and the cornerstone of their argument is the share buyback, the real improvement has been a stabilization of the economy, which has allowed the company to mark up assets that had been severely written down in '08 & '09, not the share buyback.
The reason I make this comment is that for every 3 shares bought back, 1 share reappears via the employee option incentive program. The cost to the company is whatever the market price is at exercise, and the company has been receiving between $2-4 for the majority of these shares, which generally are immediately sold after exercise.
A little rough math suggests that the sharebuyback is not really purchasing shares at anywhere near the discount that the company talks about. In fact over time it seems likely that the company will have paid more or less the market price for the shares repurchased.
Shareholders may individually have missed this shell game, it seems the market has not. It is interesting that through the magic of accounting, the company has backweighted the cost of the sharebuyback program, and presto! an additional paper boost to NAV.
This and steadilly decreasing operating income are probably the reasons that the discount to NAV exists.
The buyback is sold as a value enhancing to the shareholder. In light of the fact that employee options (granted and/or revalued back 2008-9) have been in the money now for sometime and does enrich the employee the share price since the option grants has increased 6-7 times. Of course this seems reasonable unless you have been a shareholder longer than 5 years then it all is a wash ( averaging down is a noted exception)
NAV today is also based on far fewer assets that were held in 2007 and continues to be readjusted. This share buy back is only beneficial to a long shareholder if the company returns a substantial divvy say around 8%-9% annually otherwise it has the appearance of an ACAS version of the Feds QE-3.
The re-org, if we can call it that, resembles the creation of various mutual funds, with most to be managed by ASCAM and all to be capitalized through various means. Clarity is the goal, so the market can "see " and verify that management has does utilize a solid investing strategy. Re establishing investment grade credit has been slow but they are heading in the right direction. They need to return a profit to the shareholder.
One more thing I want to mention. My negative comment about he reality of the share buybacks does not change the fact that in the end outstanding share count may be reduced by as much as 100 million shares, which is extremely beneficial to long term shareholders.
In addition I have every reason to believe that ACAS will get through the current rough patch, and emerge as a new company with as many as a half dozen new initiatives, at least some of which could turn into huge cash generators.
Personally my hope is that we see significant focus on the existing portfolion of companies, and that new investment picks up substantially. ACAS has done very well over an extended period investing in middle market companies and I do not want to see that effort reduced.
I have written here a number of times about buybacks at other companies that have gone on for a long time. No one has commented on them or the longevity of them or the impact on the stock prices over the time of the buybacks. Maybe someone can offer additional insite on the subject of buy-backs
Loews (L) has been buying back shares for over 50 years. 2nd generation management now running the company. In that time the share price keeps climbing and they keep buying but are nowhere close to reaching the NAV . In the 50+ years they have bought back over 1 Billion shares and the price keeps going up and they have to split the shares to bring the price down and of course that gives them more shares to buy back. This could go on for another 50 years.
Texas Pacific Land Trust (TPL) was set up in the 1880's to sell their 5 Million acres and liquidate. They have been selling acreage (After 130 years they are down to about 900,000 acres) and they have been selling shares all this time which keep going up in price to where they split the stock and keep selling. A few years ago the stock reached $300 per share and they split the shares 5 for 1 and the stock is now over $90 again. This can probably go on for another 130 years.
Both company's pay small cash dividends.
Share buy backs appear to be a good money making investment for the very patient investor. How it plays out with ACAS we will have to wait and see.
I'm interested to find out what others have to say.