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American Capital, Ltd. Message Board

donedealer 19 posts  |  Last Activity: Apr 15, 2014 1:22 AM Member since: Jul 2, 1998
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  • Reply to

    Value Created by Spin-Offs?

    by donedealer Apr 13, 2014 11:18 AM
    donedealer donedealer Apr 15, 2014 1:22 AM Flag

    NMB

    Thank you for your patience with my questions. I believe that I understand the substance of your belief that restructuring will add value. There is the possible elimination of the ECAS discount and possible higher valuation for ACAM.
    Whether the ACSF model can be replicated on a much larger scale remains to be seen.

    The 1Q CC should shed further light on what is planned

  • Reply to

    Since announcement of two weeks ago...

    by simple_mind99 Apr 14, 2014 1:08 PM
    donedealer donedealer Apr 14, 2014 2:59 PM Flag

    I strongly believe that their is value per share created by stock buy backs a a large discount to NAV. I am not as sure about value being created by restructuring. Granted, most holders are individuals who tend not to be that sophisticated in evaluating the effects of such a restructuring. However, one would think that there would be a number of institutions who would step in to buy if they were true believers.

  • Reply to

    Value Created by Spin-Offs?

    by donedealer Apr 13, 2014 11:18 AM
    donedealer donedealer Apr 14, 2014 2:46 PM Flag

    NMB

    I could not find the specific part of the ACSF offering to which you refer Page 34 contains a capitalization showing about 33% debt to equity..

    However, I continue to be troubled by my understanding of this model. ACSF results in ACAS getting an investment management fee but at a cost to ACSF investors of about 15% of their investment. Granted, it is pretty standard for a closed end fund to sell at a discount to NAV. Are you postulating that we ACAS investors will receive this paper at a 10% to 15% discount to NAV or that ACAS can find investors willing to buy such investments in amounts in the billions of dollars?
    It is not easy to peddle such investments..

  • Reply to

    Value Created by Spin-Offs?

    by donedealer Apr 13, 2014 11:18 AM
    donedealer donedealer Apr 14, 2014 12:06 PM Flag

    NMB

    I understand but ACAM's expenses will increase for its share of the current G&A expenses. Further, it will need to incur income taxes.

  • Reply to

    Value Created by Spin-Offs?

    by donedealer Apr 13, 2014 11:18 AM
    donedealer donedealer Apr 14, 2014 10:58 AM Flag

    NMB

    I am having difficulty understanding your calculations. Am I correct that you are imputing additional income to ACAM for fees and bonuses for managing assets presently on the books of ACAS?
    If so, then doesn't that in turn diminish the value of those assets? How are the present general and administrative expenses then reallocated among the resulting entities? Granted, there is an opportunity to further leverage up the resulting entities but there also need to subtract for income taxes. Any guidance would be appreciated.

  • Reply to

    Value Created by Spin-Offs?

    by donedealer Apr 13, 2014 11:18 AM
    donedealer donedealer Apr 14, 2014 9:19 AM Flag

    NMB

    Thank you for your comments. I will go back and look at the specifics of your post.

    I can see that ACAM paid $133 million in dividends, fees and interest to ACAS. This amounts to about 1% of the $13 EAUM (Earning Assets under Management). In contrast TROW has net income of only .14% of AUM ($1 billion on $692 billion) and BEN has net income only .24% of AUM ($785 million on $94 billion). Assume this could be leveraged up with $400 million of debt at 5% there would be $113 million of pretax income or about $75 million after tax. If the resulting PE was in the mid teens (similar to BEN) the equity would be valued at about $1.1 billion which together with the debt raised would be a value of about $1.5 billion. This is $630 million more than the present $870 value for ACAM. However, what is the quality of these earnings? KKR sells for about half the PE ratio of BEN or about 7 to 8 PE. KKR has a lightly taxed (10% rate) net income of .8% (close to ACAM) on AUM ($785 million on $94 billion). If ACAM got a comparable PE ratio there would be little value added.

    Have your calculations for the various components of the business factored in a share of ACAS general and administrative expenses and allowed for income taxes?

  • Reply to

    Value Created by Spin-Offs?

    by donedealer Apr 13, 2014 11:18 AM
    donedealer donedealer Apr 13, 2014 10:45 PM Flag

    ACAS describes the $13 billion as EARNING ASSETS. Any additional leveraged assets are not generating fee income. I suggest you read the ACAS presentations

  • Reply to

    Value Created by Spin-Offs?

    by donedealer Apr 13, 2014 11:18 AM
    donedealer donedealer Apr 13, 2014 11:28 AM Flag

    Correction: The BDC's I follow have dividend yields of 10% plus ( not 10$ plus)..

  • Have trouble understanding the value unlocked by spin-offs. ACAM is valued at $870 million with $13 billion of earning assets under management. This is a value of 6.7% for AUM (assets under management)..
    T. Rowe Price is valued at 2.9% ($20 billion value on $692 billion AUM). Franklin is valued at 3.6% ($32 billion value on $879 billion AUM). Is ACAM worth considerably more than two times the metrics for TROW and BEN?

    The BDC's I follow have dividend yields of 10$ plus. Will ACAS have enough dividend payout at a 10% capitalization to add substantial value?

    I am a long time holder and advocate for stock buybacks but have difficulty understanding the arithmetic for a restructuring. WHERE"S THE BEEF?

  • donedealer by donedealer Apr 3, 2014 12:01 PM Flag

    Buying back stock creates value per share (but not total value). Dividends create no value per share or value in total. Investments with returns above cost of capital create value per share and in total. Stock buy backs at 25% discount to NAV brings instant increase of 33% in NAV per share (but not in total).

    I am in favor of stock buy backs that create at least a 25% increase in NAV (at a 20% discount to NAV) and
    investments that have returns at about the same level.

    Spin-off and restructurings do not increase value per share or value in total. They may increase price in total and per share which is a means of unlocking value.

    Bottom line: I am in favor of buybacks and investments that meet my hurdles. Restructurings may or may not unlock value. This is especially true when management is perceived as having no significant growth plans.

  • Reply to

    1Q purchase 8.9 million shares for 15.38

    by donedealer Mar 31, 2014 8:14 AM
    donedealer donedealer Mar 31, 2014 8:32 AM Flag

    Is the suspension bad news? Press release conveys uncertainty by management on the future of the business. Is is responsible for recent weakness in price of stock?

  • Reply to

    1Q purchase 8.9 million shares for 15.38

    by donedealer Mar 31, 2014 8:14 AM
    donedealer donedealer Mar 31, 2014 8:23 AM Flag

    PS : They will not be buying more shares.

  • This is about $3.60 discount to last NAV for total gain of about $32 million. With about 270 million shares previously outstanding this results in a pick up in NAV of about 12 cents per share. I hope they are buying now with the price about a dollar lower than the 15.38.

  • donedealer donedealer Mar 28, 2014 4:40 PM Flag

    The cause is lack of growth. Generally, a 10% ROE (return on equity) is needed to achieve a price equal to NAV. ACAS needs to earn about $2 per share to get this moving up closer to NAV. Stock buy backs are a help but they cannot do the heavy lifting. ACAS needs to increase its debt to equity from the present 15% to over 50% and make some meaningful investments.

  • donedealer donedealer Mar 22, 2014 2:14 PM Flag

    Terrific - a 7% yield growing 8% per year for 15% per year total return.

  • It bottomed at 30.81 and thereby averted a 2 year low. Following the 6-28-12 low of 30.51 it rallied in 11 months to 41.48 and has since retreated over the past 10 months. At the low today it was yielding 6% on the projected distributions for 2015.

  • Reply to

    Dealing with K-1 Box 1 & Box 3 using TurboTax

    by longoftooth2u Feb 26, 2014 11:36 AM
    donedealer donedealer Mar 12, 2014 8:32 AM Flag

    It's all suspended losses with no immediate tax impact. The IRS couldn't care less.

  • Reply to

    Dealing with K-1 Box 1 & Box 3 using TurboTax

    by longoftooth2u Feb 26, 2014 11:36 AM
    donedealer donedealer Mar 11, 2014 1:34 PM Flag

    You get this every year. Box 3 is not a large amount and I just consolidate it with the amount in Box 1 and place the total in Box 1. Skip the paper work!.

  • Reply to

    8.1 million shares traded

    by sandy.criscione Feb 21, 2014 4:26 PM
    donedealer donedealer Feb 21, 2014 7:35 PM Flag

    Not if it's a pump and dump. This could result in several million shares looking to get out.

ACAS
14.66+0.05(+0.34%)Apr 17 4:00 PMEDT

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