Barron's reported on subject conference where Pine River Capital had one sole recommendation of ACAS.
They said that income seeking investors had depressed the price of the stock and they expected that the buy bacxk program will double the price in about three years.
Steve Kuhn's Presentation At Invest For Kids Chicago From Market Folly Website.
• American Capital (ACAS): a Fabulous Fish out of Water
• BDC with three business lines
o Debt & Equity in US companies
o Debt & Equity in European companies
o Asset management arm
• Tax treatment similar to REITs yet pay out all earnings in dividends
• Sector is slightly at a premium to book value
• Dividend value of 9.8%
• ACAS is trading at 0.73x but doesn’t have a dividend
• In 2008 they had a giant NOL carryforward
• But using NOL was a better strategy than paying out divided so they converted to a C-Corp and are using the NOLs
• Repurchased 27% of stock in the last 2 years which added over $1.50 per share to book value since June 2011
• Average price to book of repurchase is 0.66x
• Going to buy back 15% of equity now
• On the “naughty list “ of diluters such as Citi and BofA is 0.7x
• Book value growth has been at a CAGR of 38%
• Book value of the asset management business is $3 per share
• AUM of 14 billion
• 3 CLO deals this year – plan for additional products and business lines
• Company values business at $1 billion yet it makes $120 million per year (super conservative valuation – could be worth $500 million more)
• By 2016 Book value could be a s high at $26 per share
• ACAS has 3 years of tax shield of three more years then probably reinstates a dividend
• Think portfolio value could increase as well and could underpin a $28 per share valuation
• Management has 250 million reasons (options) to make this happen – would increase to a value of $105 million
• Book value of $19.28 and trading at $14.20
"Distressed-debt specialist Steve Kuhn of Pine River Capital looks to equity for one his picks - American Capital (ACAS). Left for dead during the financial crisis (the stock's more than a 20-bagger since the March 2009 low), the BDC has revived itself using massive tax-loss-carry-forwards to shelter income and buy back gobs of shares at a big discount to book value, rather than paying a dividend.This lack of dividend puts the name in many investors' penalty boxes even though it makes good sense, says Kuhn. The stock's a double over the next three years, he says, when the tax shield runs out and the company resumes a payout on a vastly reduced number of shares."
Continue to accumulate,starting to get serious attention!
It is always good to see the "sage" analysts come to the party 4 years later to tell us what we know already. The most important part of the eqation now is to have patience and let management keep buying back stock which will increase the NAV of each remaining share outstanding. The $175 M buyback last quarter is about $0.60 per share. On an annualized basis that is about $2.40 per share which is tax free to shareholders and over 17% annually based on the $14.03 Friday closing price.
Next step, we have to wait for the quarterly report and conference call. I'm looking for a NAV figure of about $20 per share. The higher the better.