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The Blackstone Group L.P. Message Board

holding38 4 posts  |  Last Activity: Sep 24, 2014 2:32 PM Member since: Jun 22, 2009
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  • Reply to

    Back of envelope NOI projection for ACAS

    by donedealer Aug 9, 2014 9:10 PM
    holding38 holding38 Aug 10, 2014 6:17 PM Flag

    Done,

    You may be right--but then again you may not be. the problem with your calculation is that you are projecting into the future a capital structure and set of activities that are unlikely to be continued in their present form. The investment in floating rate debt, for example, is a temporary expedient to generate income flow from what otherwise would be cash held to facilitate the restructuring.

    In the future, I would expect ACAM to be a fairly high growth asset manager and to be valued as such. This will happen as new funds are added and existing ones expand in size. Take MTGE, for example, which I began investing into a little over a year ago and have continued to add to. The fears of sharply rising interest rates hit the company sharply and it was forced to restructure its holdings and increase its hedges to protect NAV; this is costly and reduced earnings, forcing cuts in dividends. The strategy has proven quite successful and dividends have leveled off; I believe that within about 6 months they will start increasing again (not bad for a stock yielding close to 13%). MTGE is still selling well below NAV, so additional stock cannot be sold to increase ACAM/ACAS earning assets. In the future, however, the stock is quite likely to sell above NAV and open the door to the sale of additional equity on a significant scale. The opportunity here can be seen by comparing the market cap of MTGE to that of AGNC. I also expect substantial expansion of the energy & infrastructure fund and the new funds now being rolled out.

    I expect the income-oriented business development company fund to focus on high-yield loans rather than equity or floating rate loans, thus increasing the potential for rising dividends. For these reasons, I don't think it is appropriate to project into the future a valuation based on the activities of the recent past.

    Sentiment: Buy

  • Normally don't like to go so short term, but this looks compelling. Everything that has transpired over 2014 is consistent with the bullish restructuring plan. Admittedly, the company is quiet, but having been burned before by its confident pronouncements before the financial crisis, I'm sure that management wants to prevent any more lawyer enrichment at the expense of ACAS. When the announcement comes within the next few months that ACAS is restructuring into about three dividend-paying firms, the share price boost should be material.

    Sentiment: Strong Buy

  • Amidst all the stormy market action, a measure of calm might be restored by considering GE's outlook for the underseas oil exploration sector. The following passage came from a Seeking Alpha story on GE:

    "GE Oil Segment to Drive Future Growth

    According to the second-quarter results, the hottest element in terms of revenue growth and profit is GE's Oil and Gas segment. Revenue for the quarter from this segment was roughly $4.76 billion, and accounted for about 18% of the total industrial revenues of the company. Revenues for the segment grew by 20% year-over-year in the second quarter and the profit from the segment recorded year-over-year growth of 25%. The Oil and Gas segment is smaller than the Power & Water segments of the company in terms of revenues; however, the growth in the Oil and Gas business has been remarkable. During 2013, this segment generated $17 billion, which was 13.7% higher than 2012 and accounted for 11.5% of the total revenue of the company.

    Lorenzo Simonelli, President and CEO of the Oil and Gas segment, expects the oil demand to grow 1.5% higher next year while gas demand should grow by 3.5%. This demand will in turn encourage oil and gas exploration companies to expand their operations. Since GE's business is to provide the equipment needed for digging and other exploration processes, the demand for its products will increase substantially over the next few years.

    GE expects that the overall exploration industry will have a capital expenditure of $1.37 trillion by 2017, with an annual growth of 6%. Under this industry, sub-sea producers' spending will grow by 9% each year from 2014 till 2017. Offshore drilling segment has been growing rapidly, as oil and gas companies are moving towards the offshore reserves."

    Over the last two days, I moved from my Jan. '16 35 calls to Jan. '17 30s; it may take a while for normality to be restored, but it will happen.

    Good luck to all longs.

    Sentiment: Buy

  • holding38 holding38 Sep 24, 2014 2:32 PM Flag

    Seadrill does not sell "units." You are talking about Seadrill Partners, SDLP, a limited partnership which buys drillships from SDRL that have long-term contracts. Since SDLP passes its profits through to shareholders, it does not pay taxes at the corporate level and its dividends are considered more secure than those of SDRL. SDLP periodically issues more units to give it the cash needed to buy additional units from SDRL. This is an important form of financing for Seadrill.

    Sentiment: Strong Buy

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