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American Capital Agency Corp. Message Board

  • ehpb1 ehpb1 Nov 13, 2012 11:15 AM Flag

    Book Value

    Is BV no longer a valid metric?

    Sentiment: Buy

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    • Regardless of what anyone thinks about BV, right now the stock is selling for a 12% premium to current listed BV. And for every share they buy back, that's also another dividend they don't have to pay out. Soooo....anyone see evidence of them buying back so far?

      What screwed the works up was NLY announcing a buyback and then turning right around an buying CXS instead of repurchasing their shares for a similar premium. That just threw a bucketload of uncertainty into the sector. Right at the moment BV has little meaning.

      • 3 Replies to eagledragon1
      • Eagle,

        And hence, there is 12% upside on the basis that if the company were liquidated the shareholders would receive $32.50. In other industries, I tend to agree that book value means very little, but just like we ask ourselves how the market got to valuations as high as 1.20:1 (price to book) now we should ask ourselves why the market would value it at less than the amount we would realize if liquidated.

        Sentiment: Strong Buy

      • --------------------------------------------------------
        What screwed the works up was NLY announcing a buyback and then turning right around an buying CXS instead of repurchasing their shares for a similar premium. That just threw a bucketload of uncertainty into the sector. Right at the moment BV has little meaning.

        Yup and FSB turned around and downgraded them to 13.50 and cut right to the chase on NLY's management.
        -- FBR Capital views Annaly Capital's (NLY) proposed acquisition of CreXus (CXS) as an admittance by Annaly that its agency MBS model cannot work in the current environment.

        The bad news is NLY is the biggest Mreit.. so the ripple effects are big. : (

      • Book here is closer to cash than many realize. Take the Tier 2 FMV value of the portfolio plus cash and other liquids, back out repos, other debts and preferred and we were at 32.51 back at the end of Sep 2012.

        If one factors in deeply discounted buybacks of stock this quarter (exactly what the firm wants to do to get the biggest bump in net asset value) along with continued NY Fed loading up of MBS, my back of the envelope calculation projects a book (cash) closer to 37-39 in 45 days.

        I'm a buyer

        Sentiment: Buy

    • yourbestfriendintheworld yourbestfriendintheworld Nov 13, 2012 11:30 AM Flag

      BV was never a hard limit for the stock price. I never understood people's obsession with P/B numbers. The only thing certain about BV is that the company will have a very hard time justifying a stock issue when the issue price would be below BV. It also is not impossible, it's just counter to their stated goal of growing shareholder value.

    • BV is still a valid metric...same as it was when AGNC was trading in excess of 1.2 X book not all that long ago and some were posting that book value meant nothing anymore and that AGNC could trade much higher.

      I like and agree with what Ben wrote earlier on book value.

      • 3 Replies to jtrader64
      • This has to be clear to everyone. What we own is a company that has 100% liquid assets that can be sold for a value,net of liabilities, that equates to the market value as of the last balance sheet date or 30/9/12. This is the beauty of agency securities, fungible liquid secures that are being bought by the US treasuries.

        If you don't understand this, you don't know what you own. It's not like this a manufacturing company with raw materials that would have to be dumped for nothing in liquidation. The same could be said for a retailer who would have to liquidate retail inventory at a discount in liquidation. These assets are 100%, Aaa government securities that require nothing more than an arranged sale to the US treasury or other market participants. Nothing has to be done, but sell the securities, similiar to any of us buying and selling agnc over the Internet.

        Liabilities have to be taken into account, but as of the last balance sheet date, the book value was 32.49 per share. If the company were sold and liquidated, the shareholders would receive 32.49!

        There are two puts underwriting this value, the us treasury and the company's stock repurchase plan. While banks or other companies can trade than book because of concerns over asset quality, that just isn't the case here. Because of mark to market accounting, you are, getting a realistic view of what AGNC is worth each quarter. keep in mind there are some assets held for long term investment, subject to slightly different valuation methods. On the other hand, the real liabilities to liquidate would be more, but that is not the point.

        We also have to get real about what is recorded as a liability, including undistributed taxable earnings per share. This is included in your potential payout or book value as well. Personally, I think there is plenty of ongoing dividends to be received. Okay, is it 1.00 or 1.30? I don't know, but what I do know Is these guys are generating 50% of taxable earnings per share and still have undistributed earnings per share. I also know, they won't change to another number until next year.

        In one sense, the market was willing to pay a multiple of book because the assets were worth more, now we see the mark to market accounting confirmed the prior multiple. You can argue whether multiple of book can continue when the assets are marked up, but you can't argue with the fact book value per share rose to 32.49.

        At a point in time, management says I can get approximately 32.49 or I can wait and receive further distributions plus the book value later, again underwritten by the us treasury. I think it is worth more, and clearly the company will continue as a going concern. I say 34 in the short term, but we have to get through the #$%$, like we have many, many times before. There is still some juice left in the orange.

        I doubled down and now have 960 jan. 30 calls. I will die or make a bunch at 32.50.

        Sentiment: Strong Buy

      • How do you find Ben's article? Thanks

      • Thank you all.

        Sentiment: Buy

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