In this press release ACAS states that since 1997 it has earned a compounded annual return of 10% on all its investment realization v 24% on the exit of its equity investments. This shows the superior returns on equity investment and implies a very poor return on debt investments. Yet the reorganization strategy is to move away from equity investments to debt investments. Granted it may smooth out the NOI results v lumpy EPS results but appears to be a strategic move from strength to weakness.
You say that these options are likely to expire worthless, that is with a stock price no higher than $15. This would be a decline from the present price of about 15.25. Yet you say you are bullish?
I am not an option trader but have a question for you. The probable catalysts for increasing the pps are the earnings reports. The November 22 calls would be after the 2Q and 3Q earning releases. The January 15 calls would expire before the year-end results. Therefore, why not buy the November 22 calls and save about 16+ cents?
You are correct, the tape action is poor. There has been much optimism expressed on this board about the ongoing restructuring plans. There has been excellent micro analyses of every new move, (new borrowing agreement, new CLO's, equity sales and divestitures). What has been lacking on this board has been a focus on the macro picture: earnings per share. Yahoo shows the following analyst average estimates of earnings for ACAS: 2Q'14 17 cents (9 low 25 high), year 2014 69 cents (47 low 97 high), year 2015 92 cents (73 low 1.11 high). If these estimates are in the ball park it is hard to see much if any upside in the market price.
What is needed is a substantial beat in earnings per share for 2Q'14 and for the current year.
One encouraging sign is the stocks ability to hold above its rising 200 day moving average which is presently at about 14.95. It has formed a triangular wedge pattern with lower highs and higher lows which hopefully may be resolved with a breakout on the high side.
I believe that the restructuring plans will become clearer as the year progresses.
It will probably focus on becoming more of an asset manager than an asset owner.
My concern is that the near term NOI results may not support a pps higher than that at present.
In effect, this plan may have a time horizon that will take three to five years to really bear fruit, not 12 to 18 months. This would alter the outlook for the stock as it would involve a holding period that would probably take it beyond this market cycle. Granted, there may be light at the end of such a tunnel but it can get awfully dark and cold in a long tunnel.
We have already seen major reorganization moves. What the market wants to see is NOI. Market appears to be saying that reorganization will result in a single digit ROE ($ie !.50 NOI) and ,therefore, the pps is worth about where it is now. My concern is that many "true believer" holders, like some on this board, will then become disillusioned and sell.
Yes, and they present restructurings as a better alternative than buybacks when buybacks were off the table. Kept hearing that buybacks were out because we need the cash for restructurings.
Is that 7-8 cents Q total or incremental?. Does it consider the loss of the NOI that the $1.2B of equity was previously earning?
I see ACAS sitting on its 200 Day Moving Average which average is continuing to slope upward. Technical indicators aside, it appears there should be little risk of a significant move below the 200 DMA because this level is about 75% on NAV. A move significantly lower would probably require bad news on earning or NAV.
The progress reports will be the quarterly earnings releases. Prior to the announcement of the plan to restructure many posters on the board who anticipated such a move hoped that the announcement of the plan would move the stock price up. This has not happened as the market price has been declining year to date. I have yet to see any financial projections on this board or elsewhere as to the results of the restructuring: NAV, EPS, PE ratio and projected price per share.
My concern is that "some market participants" have made such projections and are voting with their money. Much that I have read on this board is that restructuring is "a magic bullet" and have faith. I hope they are right. I have seen the buybacks, which were increasing NAV per share, suspended while restructuring included divesting equities at a 10% discount to NAV. Hopefully, other aspects of the restructurings will be more positive. My fall back position is that if all this fails then stock buy backs can be resumed.
Year to date ACAS down 4.9% v S&P 500 with dividends up 7%. This is after ACAS has announced plans to restructure. Hopefully this gap will narrow with 2Q earnings release.
I understand that all the equity investments need to be unencumbered in order to divest them. . Further, I understand that additional cash is need to add to some of these divested equity interests. But that leaves ACAS with substantial debt investments and ACAM, which should support a substantial line of credit.
In either event this issue is not central to my concern, which is essentially the
merits of the restructuring and the time table to successfully implement it.
I find it interesting that you and other supporters of the restructuring would probably be the least likely (and rightly so) to want to invest in ACE 111 and these other entities with up front fees of 1.5%+ and profit sharing of up to 20%.
If I am incorrect and you would be interested in such an investment please advise. If not, this underscores my reluctance to award a high PE ratio to ACAM'
I will continue to hold my position and hope for the best.
No, I do not think management is lying. These are judgement calls. I don't see the need for that much cash, especially considering their lines of credit. Yes, I do believe that most corporate managements do not favor liquidating their business. There is a natural tendency to want to grow and get bigger.
I am a long term holder who would be faced with about $3 in taxes per share if I sold. Although I am questioning the benefits and timing of the restructuring I believe that there is little downsize risk at present levels. I would be very hard pressed to find a better investment with the $12 in after tax proceeds I would have if I sold. Unless something very unfavorable happens I am holding for the long term.
My concern is that the upside may be less and take longer than I had hoped.
Maybe others on this board are in LaLa Land. I suspect that many like me have ACAS as their worst performing stock year to date. Down about 5% and off about 11% v S&P 500. This in a period when they have announced this exciting news about restructurings - which the market is not rewarding. We have gone from buy backs which were increasing NAV to divestitures of equities at a 10% discount to NAV. We are seeing large charges to earnings for stock awards. We are now awaiting some positive results from restructurings which .we have no idea as to the results or the timing. Some assume it is a year or two and that it will be driven by a higher valuation for ACAM. They hope for a double digit PE for ACAM. Yet, ACAM is no TROW which has an outstanding record on relatively low fees. ACAM is a high fee - share of profits model with a questionable track record. What if restructurings result in a single digit PE ratio, like KKR? I clearly do not know the answer but unlike some am able to consider the possibility. Further, although I believe the market is frequently wrong, I respect its opinion - which is clearly negative.
I hope for the best. But have yet to see any positive evidence. It is also possible that restructuring will be a success but in a longer time frame - one that could take us through another market cycle.
It will result in taxation of appreciation to stockholders holding in taxable accounts. I will respond by selling my shares. I would assume I am not alone.
We were told that buy-backs were suspended to raise cash for restructurings. Yet now we see an acquisition which if used for a buy-back would have produced an immediate 33% gain on that cash. I do not believe that a cash surplus is needed for restructurings. Is is possible that buy-backs were suspended because although they were increasing NAV per share, they were slowly liquidating the company thereby threatening layoffs and compensation increases?