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Annaly Capital Management, Inc. Message Board

  • tremulousbull tremulousbull Jan 25, 2013 5:38 AM Flag

    Predicting book value

    I've been looking over prices of Fannie Mae paper over the past 2 quarters in hopes of trying to find a way to predict changes in Book Value. I average the change in price, between the different maturities, quarter to quarter. I Use the change in book value from previous quarters and paper price changes, as a reference point to apply the price changes to for this quarter. From what I calculate, (not counting any sort of buy back) the book value will drop about 1/2 as much as it went up in the last quarter, so it will drop to 16.41. I make a million assumptions with this method, mostly keeping all variables as constants in regard to their portfolio composition. Does anyone have a better way of using this information to accurately predict this?

    Thanks in advance.

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    • paul.dent Feb 6, 2013 5:14 PM Flag

      Total book value goes up by GAAP profit then down by dividends paid and taxes paid
      NewBookValue=OldBookValue + GAAPprofit - DividendsPaid -TaxesPaid

      Then divide that number by the sharecount to get the Book Value per share

      Since we know OldbookValue, DividendsPaid and you can assume TaxesPaid will remain the same (which is mainly corporation tax that the company has to pay on Mike Farrel's excessive compensation, which is not a deductible expense over the first $1m) , then predicting total book value just requires predicting GAAP profit. Just use analysts estimates for that - they can predict it better than you.
      To get book value per share, you have to predict share count. We should know if they made any secondary issues, but we can't know how many shares thay might have repurchased.

      Sentiment: Buy

      • 2 Replies to paul.dent
      • ------------------
        which is mainly corporation tax that the company has to pay on Mike Farrel's excessive compensation

        NLY was refunded corp tax this quarter, they also did not pay Mike Farrel any compensation that i could see, although there might be some sort of survivor benefit that i did not catch...

        they also paid over all far less in Management expenses this quarter....

        we do know how many shares they bought back, but the surprise was the number of "diluted" shares that increased the share count...

        to get book value per share, as i said before requires many many inputs, and is impossible to know unless one is an insider... one can only make assumptions about over all trends, and then those trends are broken with the Fourth quarter where they balance out everything for tax purposes...

        you can plot a graph and get a a historical direction for book value, and generally it is up on average... with blips like this quarter always sprinkled in...

      • Paul, your explanation is a bit to simplified.

    • beatystud Jan 31, 2013 10:17 AM Flag


    • when they report, they will be reporting book value for last quarter, so you are doing it a quarter forward, in other words, book value went UP last quarter due to fed moves, not down, so now the book value reported for the quarter we are in (when they do report in 3 months), will be off from that "UP" revision of dec 31st, settling at something over the $16.60 or so that was reported for the quarter before (sept 30th)... (when they report, it will be book value is such and such for Dec 31st) and the fed was forcing prices up during about half of that quarter...

      more importantly, even with out all this skewing that fed has done to the market, NLY has consistently increased book value on average over 15 years. anyone buying below book value for NLY in the past has made large amounts of money, (which isn't saying much because anyone buying NLY at anytime, and having given that investment some time to mature, has made large amounts of money if reinvesting those dividends, because the dividends were reinvested at prices that eventually were lower than the book value) since book value has always trended up.

      • 4 Replies to jonkai3
      • ----------
        when they report, they will be reporting book value for last quarter, so you are doing it a quarter forward, in other words, book value went UP last quarter due to fed moves, not down,

        Hahaha, Jonk your an idiot.
        Book value came in at $15.85 for Q4 vs $16.60 for Q3.

        Who is sophomoric?

      • I didn't see any increases in the price of Fannie paper in Q4, they were lower at the end of the quarter compared to the beginning. But I wasn't very clear on what time period I was talking about, so maybe we are actually saying the same thing but looking at different time periods. My analysis looked at the increase in the price for Fannie paper from beginning of Q3 to the end of Q3. This correlated to a book value increase reported in Q3 (compared to Q2). I then looked at the price of Fannie paper from the beginning of Q4 to the end of Q4 and found that on average it decreased by about half of what it had increased in Q3. Therefore my thesis is that book value in Q4 ( yet to be reported) will decrease by about half of what it had increased by in Q3 so it will drop to $16.41. I am really hoping that they bought back a ton of stock in Q4, this should elevate book (from what I calculated) considerably.


      • NLY had by far the worst book value increase among the agency reits.
        Their management blew it.
        Everyone but NLY was seeing 8%-13% book increases.

        What did NLY manage. Like 2%. That is terrible.

      • Very informative, thanx. If I understand correctly, NLY makes its money on the spread between short and long rates, which IMHO is very positive for 2013 because the Fed is necessarily focused on on keeping short rates low. And based on their goals, the Fed will not push short term rates up this year (unemployment at 5.5%? Ha!) External forces could easily push up long term rates, though.

    • Numerous past posts have claimed that buying whenever NLY is under BV is a good deal. If so, it's a screaming buy based on your data.

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