The market is speaking. It doesn't like ACAS and is unimpressed with planned spin off. Latest announcement of possible buy backs appears to be too little too late. I hope that the market is wrong.
i agree. This on top of large stock options already granted. The over $37 million last year to the top 5 executives is close to 10% of the EPS. Name another company with 10% EPS to the top 5.
This reinforces my belief that this is not a long term holding.
You appear to be suggesting that the sum of the parts immediately after the spin off may reflect a depreciation from today's price. I certainly hope not and am holding on for the spin off. Regarding ACI, I am not sure as to the tax status. IR gave me a tentative opinion of non-taxable but I believe this may not be correct. It appears that it will be a taxable dividend distribution from a C-Corp. However, will the NOL of ACAM produce a partial or total ROC on the distribution? This will all be spelled out in the prospectus.
Their 2014 YE investment in operating companies was $2.774 million at cost and $2,151 million at FMV. Yes , I have seen their published returns on equity exits but there are a lot of built in losses remaining.. If ACAS with about 50% of their investments historically in equities had achieved anywhere near 15% returns the stock would have gone to the moon.
My interest in ACAS is not based on substantial narrowing in the discount in the BDC's but in a possible premium in the asset manager. I will not be a long term holder of the BDC's due to fees charged and my aversion to ordinary income. I will hold the asset manager.
I question your assumption of a 15% return on equity investments. If ACAS had achieved this result it would have a higher NAV and no discount on NAV.
You mention that RAS has distributions that are ROC. I am concerned when companies have returns of capital, capital losses carried forward or NOLs (ACAS is in this camp) at the height of a bull market and an economic expansion. Yes, this is favorable for distributions tax wise but what does it say about the management's investment and operating capabilities?. Warren Buffet doesn't have any NOL's. I have no capital losses forward and am sure that you don't either.
In seeking out capable investment and operating managers in today's market I would be very reluctant to choose those with loss carry forwards.
I am long ACAS and am very pleased with the performance over the past 5 years.
Yet I am doubtful about the performance going forward. Although I give the management high marks for their performance over the past 5 years their long-term investment performance is poor. The gross assets they manage have not kept up the S&P and I suspect the assets in your portfolio.
A complete liquidation of the company would yield immediate gains. What is the future of this business beyond closing the discount to NAV? Is it a growth company in which you would want to hold long term?
Yes, the management has done a good job post 2009 crises, but have they produced the investment results that would cause investors to pay the fees they are seeking? They are no KKR, Blackrock, Soros, Cooperman. Assuming ACAS could close the gap to NAV wouldn't you exit for greener pasture?
See my earlier post today about latest article from Seeking Alpha. The analyst assumes spin=off could be the end of 2016.
It starts with $19.50 NAV, alter allowing for dilution from stock options. It assumes that the BDS's with 80% of that value, or $15.60, will trade at a discount of about 15% for a total value of $13. It assumes the asset manager will have about $175 million in annual fee income and trade for about $7. This brings the total present value to about $20. It assumes that the spin-off could take two years to complete at which time the total value will be at least $22 for a an annual return on the present price of over 20%.
The subject of stupid refers to the market not the posters.
Many posters believe that the market will ignore the dilution from options while no CFA would. And the posters may be right. The purpose of the post was to discuss the valuation. I started with $19 NAV. Others can start with $21.
You appear to be in the ball park. I start with $19 NAV (after allowing for stock option dilution which most posters believe the market will ignore because it is stupid). $14.25 or 75% will be spun off and will sell at about $12 for a discount of about 15%. The asset manager hopefully will sell for at least the remaining NAV of $4.75. This gives a total value of $16.75. The wild card is the asset manager.
Can it sell at a premium and how much? With probably less than 50 cents per share EPS it appears that it may be limited to about $6 for a total of $18..
Your reply is primarily concerned with accounting for exercised options. The issue here concerns options that have not been exercised. If you believe that the journal entry for estimated option expense is a credit to other that shareholders' equity then where is that credit on the balance sheet? It does not exist.
I have trouble understanding all of your points. The issue here is NAV not effect on earnings. The journal entry for estimating option expense is to debit earnings and credit shareholders' equity, which has no effect on NAV. The issue here is what adjustment does the market make for option dilution. Your view or mine is not relevant. Read what has been written on this subject. One such article appeared in Seeking Alpha by the Jaded Consumer.
Therefore you would be unconcerned with 1 billion options outstanding with an exercise price of 1 cent per share if the options didn't vest for several years. I spent 35 years in investment banking M&A and would love to have found buyers like you to sell a business to..
The actual number of shares issued and outstanding Q3'14 was 269.9 million.
The shareholders' equity was $5.441 billion and the reported NAV per share was $20.54. Therefore the NAV per share was derived from the actual number of shares outstanding not an increased amount to compensate for dilution..
For you non CPA's when earnings are debited for the estimated cost of option grants the offsetting credit is to Stockholders' Equity with zero effect to NAV. There is a reduction in that years earnings but no net effect on Stockholders' Equity. That reduction comes when the options are exercised.
I respectively disagree with you. Footnote 5 to the 2013 Form 10-K shown 54.1 million options outstanding at a weighted average price of $9.13 per share (with the highest at $13.68)..
All these options are in the money at an average appreciation of about $5 per share.for a potential dilution of about $270 million. If the stock were to appreciate to about $16 per share that would bring the total dilution in NAV to about $380 million or about $1.50 per share..
Granted, at that time (year-end 2013) only about 50% (26.7 million shares) were vested. However, as we have seen recent cut-backs resulted in employees becoming vested. I assume that nearly all of these shares will become vested and be exercised.
What am I, the Jaded Consumer and other analysts missing?.
Won't most these options be exercised and result in a dilution in NAV? Suppose the options outstanding were one billion at an exercise price of 1 cent per share. Would you continue to ignore the dilution?
You shouldn't try to convince me. Go after the analysts and professionals who are writing about this and reflecting it in the market place. For example, google seeking alpha then ACAS. The Jaded Consumer Nov. 6th 2014 values ACAS at 18.22 after allowing for stock option dilution.
Per Yahoo schedule of dates for earnings releases.