koleffstephan, I hope that stock purchase works out for you. It's hard for me to buy more shares of PSEC. I'm worried that rather than being an "undervalued stock", PSEC has become like a pizza with a small amount of rat spit on it. Even if a pizza is being offered for half price, many people won't buy a pizza with rat spit on it. Has management's brazen behavior, poor governance and destruction of shareholder value turned PSEC into a pizza with rat spit on it? That's the question I'm asking myself...
It stands to reason that spinoffs of the CLO, online lending and real estate businesses will trade at higher multiples than PSEC does currently. Eliasek stated during the web seminar a week ago that PSEC will look to reinvest the cash it gets from the spinoffs at similar or higher yields than those the spun off businesses were generating, so PSEC's dividend shouldn't be much affected post-spinoffs. The spinoffs all have higher internal ROIC than PSEC does, so should trade at higher multiples than PSEC. Industry comps support this assumption. Investors have a right to be skeptical or even cynical after the dividend cut last December, and considering the fact that the rapid growth in PSEC's assets over the last few years haven't benefited shareholders. But, I still think the planned spinoffs will create shareholder value at the end of the day. And, although many shareholders have questioned management's motives, it can't be denied they have been making large PSEC share purchases recently. So, now John Barry owns over 5.3 million shares after recent purchases. Based on the current PSEC share price, his timing doesn't appear to be prescient. Still, it is noted that he recently bought PSEC shares at their largest discount to book value since the financial crisis, and the spinoffs could be the near-term catalyst for shareholder value creation. It doesn't appear that the market is ascribing any value to the spinoff plan, so it would surprise me if John Barry's PSEC share purchase of last week is in the red a year from now.
Many investors are voicing an opinion that Prospect Capital will refuse to do a share buyback and asset liquidation to boost the share price, because doing so will reduce AUM and fee income for the management company. These investors assert that Prospect Capital will put the profits of the management company ahead of shareholder interests. If Prospect Capital executes a share buyback and asset liquidation as I recommend, doing so will constitute a demonstration that Prospect Capital puts shareholder's interest ahead of the management company's interest. Such a demonstration will go a long way toward boosting the flagging morale of PSEC shareholders who have suffered stinging losses over the last year.
PSEC stock is currently trading at $7.23 share price as of 11:00 am PST on June 10, 2015. According to the most recent 10Q, PSEC's book value is $10.30 per common share as of March 31, 2015. The bulk of the portfolio of loans and other assets are marked-to-market on a quarterly basis, and therefore should closely track the current market value of the assets.
My point is that PSEC common stock trades at a 30% discount to the current market value of its assets, if the marks actually reflect current market value as required per GAAP. Prospect Capital can sell portfolio assets at the current market price, and apply the sales proceeds to purchase PSEC stock currently trading at a 30% discount to book value. Basically, that amounts to buying PSEC shares for $7.23 per share (where the shares are currently trading), and selling the underlying assets of the repurchased shares to realize the $10.30 or so book value per share. In my opinion, if the mark-to-market valuation in the 10Q is reflective of current market value, it should be possible for Prospect Capital to realize at least $2.50/share or so differential between the book value and the current share price (after accounting for transaction costs and tax consequences).
I urge Prospect Capital to commence a share buyback and concurrent liquidation of portfolio assets to reduce the 30% discount of PSEC common stock to book value per share. This action is in the best interest of shareholders who have suffered a 30%+ decline in share price since the Fall of 2014. Doing a share buyback in conjunction with an asset liquidation will not increase Prospect's debt ratios, nor will it affect S&P's investment grade debt rating.
It's hard to interpret Mr. Barry's share purchase behavior as anything other than strong optimism for the business prospects of PSEC. I conclude that Mr. Barry's share purchases in 2014 reflect a conviction that PSEC stock was significantly undervalued at his acquisition price. Clearly Mr. Barry is in a position to know more about Prospect Capital than most investors. He purchased well over $7 million worth of PSEC shares last year.
Fat chance! The BOD is a lapdog board, and Barry will make sure it stays that way. Barry and Grier are totally unresponsive to shareholders, and they have gotten away with it for years. He's more difficult to dislodge from his perch atop Prospect Capital than Vladimir Putin.
The dividend is 30 cents/share annually, and 25% of that is withheld by the Israel taxing authority. Net of foreign tax, that leaves 22.5 cents/share in cash dividends to U.S. investors. U.S. investors generally take the foreign tax credit to minimize income tax. MNDO has rising operating margins, and has hiked the dividend from 24 cents to 30 cents within the last year. CEO Monica Iancu owns over 20% of the outstanding shares of MNDO. It's very difficult to find a growth stock like MNDO that pays out such a hefty cash dividend. MNDO has zero long-term debt, and sports 79 cents/share on its pristine balance sheet.
Sentiment: Strong Buy
Here is my response to Mr. Cimini in PSEC IR:
Dear Mr. Cimini,
Thank you for your response to my share buyback proposal. Please note that I'm proposing that Prospect Capital execute a share buyback in conjunction with a concurrent asset liquidation in equal dollar-for-dollar amounts. In other words, I'm proposing that for every dollar of PSEC share purchases, a dollar of PSEC assets will be sold, so the net result will be leverage neutral. As proposed, the buyback will not adversely affect leverage ratios, and will not impact S&P's assigned debt rating.
This share buyback proposal is clearly in the interest of shareholders who have endured a 30% share price plunge since last Fall. I wish to point out that there is a perception in the investor community that PSEC management appears to put the interests of the management company ahead of shareholder interests. Executing a share buyback will be a strong demonstration that management puts the interests of shareholders first.
Collect a 10% annual dividend while you wait for NRF to spin off NRE, and probably more "pure play" reit spinoffs after that. What's not to like?
Stilley hasn't "run (Paragon) into the ground". The market assumes Paragon will crash and burn, but to date Paragon continues to generate strong free cash flow, and is obviously not in financial distress. May and June are likely to be pivotal for Paragon as a large number of contracts terminate then. If all of those affected rigs become idle, then the future looks dim. Longs need to hope Paragon can keep at least half of those rigs working past June. Shorts like goskiing are hoping customers flee, leaving Paragon to cold stack the idled rigs. The "base case" scenario is that Paragon generates roughly $2/share or so of free cash flow in 2015. If you know what happens in 2016 and beyond, then why are you wasting time reading this? Bet on oil futures and get rich!
I don't think the earnings matter that much. Free cash flow per share is what counts. In 1Q, free cash flow was roughly 35 cents/share on an annualized basis, so it easily covers the dividend. Some big deals that were expected to close in 1Q didn't close, but Monica Iancu is still looking for them to close in 2015. And, MNDO has 79 cents of cash per share on its debt-free balance sheet. So, what's not to like?
Sentiment: Strong Buy
cold_beef, I agree with your suggestion. I also would like to see Mind CTI start paying quarterly dividends instead of one big annual dividend in February. The annual dividend payout is the reason the stock price exhibits pronounced seasonality.
Sentiment: Strong Buy
casadipace, there may be a sound strategic reason why Wes Edens is keeping NCT's future investment direction close to the vest. Perhaps he wants to keep his next move on the hush to preserve a "first mover" advantage. When NCT pioneered MSRs as a reit asset, it was able to acquire MSRs for very attractive prices, partly because there were few other reits bidding on those assets. Today PMT and other reits bid for MSRs, and pricing is much less favorable. If Wes Edens sees some assets he thinks are "really interesting" as he remarked, why should he tip his hand that NCT is on the hunt for those assets?
ockiote, you must be out of your mind! PSEC stock is trading lower today than it traded in 2009 at the market nadir! And you say, "I urge Prospect to keep making deals and working as they have to maximize growth and income while increasing share value...". Look, Prospect has had six (6) years to increase share value, and they have failed miserably. During the last six years, the S&P 500 has tripled in value, while PSEC stock has lost ground! And, you are still a cheerleader or PSEC management?
Clearly, PSEC management is responsible for most of the poor stock price performance. So, when does PSEC become so undervalued that it's a screaming buy? I don't know. PSEC management is entrenched, and is totally unresponsive to shareholder calls for governance reforms and changes in management compensation to align its interest with shareholders' interests. The lapdog BOD means it's impossible to oust current management, which appears to have destroyed shareholder value through its conflicted actions. Management and the BOD is unaccountable to shareholders. So, I'm asking, "At what point does PSEC stock become like a pizza with a tiny bit of rat spit on it?" I wouldn't buy a pizza with rat spit on it, even if it's offered at half-price!
I received a response from PSEC IR. Here it is:
We are analyzing the potential effects of a stock buyback and plan to send the required notice to shareholders ASAP. The 40 Act requires that we notice shareholders before we buy back shares and the previous notice we had made expired in March.
Once that notice is sent, we will be free to buy back shares. Some of the issues to be reviewed with a stock buyback include leverage limits, S&P limits for leverage in maintaining the investment grade rating for our debt, and the alternative uses of the cash for investment, which may have better returns than the buyback.
If you have any further questions, please do not hesitate to contact me.
geoffrion22, what ails PSEC is self-interested, conflicted management. The guiding principle and gold standard for management of public companies is that they must always put shareholder interests first. PSEC management doesn't meet that test, and has demonstrated its lack of regard for shareholders on numerous occasions. The sad fact is that Barry is a smart lawyer who is able to fend off shareholder calls for governance reforms. He not only rejects analyst recommendations for improvements in governance, but he is sometimes insulting and profane on CCs. Clearly his lack of regard for shareholder value and his overt actions that swell management fees at the expense of shareholders show he has no fear of being ousted by the lapdog BOD.
I'm of the opinion that management isn't limited to creating shareholder value by simply issuing shares, and then using the cash proceeds to make accretive investments. To me, the main investment thesis for owning NRF shares is that Hamo plans to spin off NRE to NRF shareholders, and company presentations make the case that NRE's assets will trade at a higher multiple post-spinoff. I believe NRF's main investment thesis is that Hamo is going to spin off NRE, and then possibly healthcare properties, New York properties, etc., as "pure play" reits that trade at higher multiples (ie, lower dividend yield) that NRF does currently.
I've been an NRF shareholder since 2009, and it is clear that Hamo is a master-of-the-universe type New York investment banker who is able to pull off some amazing feats of financial engineering. Like the time back in the dark days just after the financial crisis when he bought a CDO for a song, and then did some little tweaks, and suddenly the CDO was gushing free cash flow for the benefit of NRF shareholders.
In recent presentations, Hamo is telegraphing that he intends to continue to spin off "pure play" reits from NRF that trade at a premium. If it were anyone else besides Hamo, I'd be more skeptical about the likelihood for success. But, Hamo has a long track record of value creation for NRF shareholders, so I want to stay on this bus. So far, Hamo has been delivering the goods to NRF shareholders. Although I suppose it would be nice if each individual capital raise and subsequent investment is accretive to shareholders, I believe it is more important that such investment cycles further the ultimate goal of creating shareholder value via spinoffs of "pure play" reit(s). If Hamo comes through on NRE and other spinoffs of "pure play" reits, that will constitute a kind of "financial alchemy" in which he buys various assets, and then is able to reconstitute them into reits that trade at a premium to what he paid for them.
As to the reason for the recent selloff, I suspect that Louis Navellier, who is a momentum investor, just sold off his position. Navellier's computer driven investment strategy is to buy whatever stocks are going up the most. As MNDO stock made a strong upward move beginning last fall, it was picked up by Navellier's momentum screen as a high alpha stock, and he initiated a position. As soon as one of his momentum stocks falters, and no longer exhibits strong momentum characteristics, Navellier sells, and I suspect that is what happened in this instance. MNDO's stock price exhibits pronounced seasonality, typically selling off in the months after paying its huge annual dividend in February. It then begins to perk up in the fall as investors buy shares in anticipation of the coming annual dividend payout. MNDO typically sees strong share price appreciation and peak valuation in the month prior to the February dividend payout. This seasonal pattern has persisted for many years, and is likely to repeat over the next 12 months.
Sentiment: Strong Buy
Sure, could happen. And, maybe when NTP excavates the building sites, they'll discover a gold deposit bigger than the Mother Lode, or perhaps they'll stumble upon the biggest oil deposit since Kashagan!!!!!!