A recent reply cited a 10% cost of long term debt. This, I understand was refinanced from a higher rate. This lower rate should raise the ROE,(a good thing) because of the reduced int. expense, and reduce the gap between ROA(7.2%) and cost of capital(now 10%). Any feedback will help. mikew
By the way, the new 10% notes were issued around $95, and some of the notes being retired were south of 10%. Did you do the math based on actual size of each offering being retired to conclude they were paying less now with the new notes?
It's not the gain they get from losing a few points of interest that has me curious. The real question for me is what level of return on equity can they achieve at all going forward. AOI reported a 49% ROE last year, which is an absurdly incredible number. Is that a one time effect from something or is it repeatable? The gross margin seems reasonable.
Trading at book value with that kind of ROE, I would back up the truck if I believed the ROE was sustainable. It seems too good for a wholesaler working at the bottom of the tobacco food chain? Maybe the real issue here is that shareholder equity is just not very high relative to assets. ROA is not bad at 7%+.
Anyway, we are thinking about the same issue from different perspectives.
They do have a lot of debt. Enterprise Value/EBITDA is not nearly as good as return on equity suggests.