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James A. Shell is currently working as an ISO9001 Quality Systems Consultant and a technical consultant to various other industries, A veteran of 3 decades in the petrochemical supply chain, I have worked with customers in 19 countries on four continents on formulation development, business... More
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  • Update: The Future Price Of AGNC Raw Data

    1. Current course, Stable spread

      
    Share Increases/Quarter40,000,000  
    Effective Leverage7.84  
    Spread Stability1  
    Income Efficiency0.93  
    Dividend Payout0.96  
    Yield0.18  
    Spread Base Level1  
        
        
    QuarterActual PriceOfferingNo Offering
    2011-129.231.11 
    2011-229.7431.11 
    2011-329.7131.11 
    2011-428.0631.11 
    2012-130.0727.78 
    2012-23535.0035.00
    2012-3 36.0438.32
    2012-4 35.6738.32
    2013-1 35.3438.32
    2013-2 35.0338.32
    2013-3 34.7638.32
    2013-4 34.5038.32
    2014-1 34.2738.32
     

     

    2. Interest Rate Decay, With and Without Share Issuances 
        
    Share Growth/Quarter0  
    Effective Leverage7.84  
    Spread Stability0.98  
    Income Efficiency0.93  
    Dividend Payout0.96  
    Yield0.18  
    Yield Decay1  
        
    QuarterActual PriceWith OfferingsWithout Offerings
    2011-129.231.11 
    2011-229.7431.11 
    2011-329.7131.11 
    2011-428.0631.11 
    2012-130.0727.78 
    2012-23535.0035
    2012-3 34.6136.80
    2012-4 33.4536.07
    2013-1 32.3235.34
    2013-2 31.2134.64
    2013-3 30.1433.94
    2013-4 29.1033.27
    2014-1 28.1032.60
     

     

    3. Interest Rate Spread Slow Increase  
        
    Share Growth/Quarter0  
    Effective Leverage7.84  
    Spread Stability1.02  
    Income Efficiency0.93  
    Dividend Payout0.96  
    Yield0.18  
    yield decay1  
        
        
    QuarterActual PriceOfferingNo Offering
    2011-129.231.11 
    2011-229.7431.11 
    2011-329.7131.11 
    2011-428.0631.11 
    2012-130.0727.78 
    2012-23535.0035.00
    2012-3 37.5039.87
    2012-4 37.9940.66
    2013-1 38.5941.48
    2013-2 39.2742.31
    2013-3 40.0343.15
    2013-4 40.8644.02
    2014-1 41.7674126444.89655621
     

     

    4. Stable Rates/Higher Leverage  
        
        
    Share Growth/Quarter0  
    Effective Leverage9.00  
    Spread Stability1  
    Income Efficiency0.93  
    Dividend Payout0.96  
    Yield0.18  
    Yield Stability0.98  
        
    QuarterActual PriceWith OfferingsWithout Offerings
    2011-129.231.11 
    2011-229.7431.11 
    2011-329.7131.11 
    2011-428.0631.11 
    2012-130.0727.78 
    2012-23535.0035.00
    2012-3 37.3838.32
    2012-4 37.7238.32
    2013-1 38.0338.32
    2013-2 38.3138.32
    2013-3 38.5738.32
    2013-4 38.8238.32
    2014-1 39.0538.32
     

     

    5. Decaying Yield   
     AGNC Price ModelEnter Values Here
     Share Growth/Quarter40000000 
     Effective Leverage7.84 
     Spread Stability0.98 
     Income Efficiency0.93 
     Dividend Payout0.96 
     Yield0.18 
     Yield Stability0.97 
        
    QuarterActual PriceWith OfferingsWithout Offerings
    2011-129.231.11111111 
    2011-229.7431.11111111 
    2011-329.7131.11111111 
    2011-428.0631.11111111 
    2012-130.0727.77777778 
    2012-2353535
    2012-3 37.5524028538.31877842
    2012-4 38.1016166638.31877842
    2013-1 38.7178108938.31877842
    2013-2 39.3977280238.31877842
    2013-3 40.1390913738.31877842
    2013-4 40.9404007238.31877842
    2014-1 41.8007842438.31877842

    Dividend Yield Calculations: I updated the "current" dividend yields to reflect the 1.25 dividend that AGNC declared in the second quarter.

    1. Current course, Stable spread  
        
    QuarterActualDiv Stream/OfferingDiv Stream No Offering
    2011-11.4  
    2011-21.4  
    2011-31.4  
    2011-41.4  
    2012-11.25  
    2012-21.251.251.25
    2012-3 1.621814071.724345029
    2012-4 1.6051255771.724345029
    2013-1 1.5901260971.724345029
    2013-2 1.5765169661.724345029
    2013-3 1.5640714111.724345029
    2013-4 1.5526133151.724345029
    2014-1 1.5420032571.724345029
        
    2. Interest Rate Decay, With and Without Share Issuances 
        
        
        
        
        
        
        
        
        
    QuarterActualWith OfferingsWithout Offerings
    2011-11.4  
    2011-21.4  
    2011-31.4  
    2011-41.4  
    2012-11.25  
    2012-21.251.251.25
    2012-3 1.5575902331.656060966
    2012-4 1.5052387751.622939747
    2013-1 1.4541907791.590480952
    2013-2 1.4045488921.558671333
    2013-3 1.3563724861.527497906
    2013-4 1.3096908531.496947948
    2014-1 1.2645120371.467008989
        
    3. Interest Rate Spread Slow Increase 
        
        
        
        
        
        
        
        
        
        
    QuarterActualWith OfferingsWithout Offerings
    2011-11.4  
    2011-21.4  
    2011-31.4  
    2011-41.4  
    2012-11.25  
    2012-21.251.251.25
    2012-3 1.6873353581.794008568
    2012-4 1.7096901761.82988874
    2013-1 1.7363958641.866486514
    2013-2 1.7669995021.903816245
    2013-3 1.8011882291.94189257
    2013-4 1.8387473781.980730421
    2014-1 1.8795335692.020345029
        
    4. Stable Rates/Higher Leverage  
        
        
        
        
        
        
        
        
        
        
    QuarterActualWith OfferingsWithout Offerings
    2011-11.4  
    2011-21.4  
    2011-31.4  
    2011-41.4  
    2012-11.25  
    2012-21.251.251.25
    2012-3 1.6822823831.724345029
    2012-4 1.6973379351.724345029
    2013-1 1.7111327931.724345029
    2013-2 1.7238697081.724345029
    2013-3 1.7357056221.724345029
    2013-4 1.7467645671.724345029
    2014-1 1.7571463161.724345029
        
        
    5. Decaying Yield   
        
        
        
        
        
        
        
        
        
    QuarterActualWith OfferingsWithout Offerings
    2011-11.4  
    2011-21.4  
    2011-31.4  
    2011-41.4  
    2012-11.25  
    2012-21.251.251.25
    2012-3 1.6595008431.724345029
    2012-4 1.6500960521.724345029
    2013-1 1.6432464081.724345029
    2013-2 1.6386611251.724345029
    2013-3 1.636106561.724345029
    2013-4 1.6353932981.724345029
    2014-1 1.6363666891.724345029

    Disclosure: I am long AGNC.

    Additional disclosure: I am also long ARR, CYS, IVR, TWO

    Jul 26 9:12 AM | Link | Comment!
  • Raw Data: The Future Price Of AGNC

    Thanks for clicking on this. Here is my rationale:

    Each quarterly stock issuance raises capital. The amount is based on the number of shares and the offering price.

    The capital can be applied at a given leverage rate, as indicated in the financials for AGNC, to expand the portfolio. The company can then use the portfolio at the interest rate spread, which last quarter was 2.31% to derive the income.

    It can and will distribute the income in the form of dividends at a known rate.

    Leverage:

    If you calculate this on the basis of the table on page 56 of the AGNC annual report and calculate the amount of funds raised during 2011 and compare that to the change in portfolio value, the result is reasonably close to the average 7.86:1 leverage value that is stated in AGNC's investor fact sheet. Using the leverage to compute the amount of incremental portfolio that AGNC can add with each incremental share issuance, we can then use the interest rate spread data to compute the amount of income that can be derived from the portfolio:

    QuarterLeverageInterest Spread %
    2011-17.92.58
    2011-27.62.46
    2011-37.92.14
    2011-47.61.9
    2012-18.22.31
    Average7.84 

    Income derived from the increased portfolio:

    We have to make a couple of adjustments. If we multiply the portfolio value by the interest rate spread, we get a number that is slightly different from the actual net interest income, and there is a similar adjustment when translating from net income to actual dividend payout:

    QuarterActual Interest IncomeTheo Int IncomeEfficiency
    2011-1164181.83840.9019
    2011-2201245.3850.8191
    2011-3232224.1651.0350
    2011-4263260.31.0104
    2012-1406465.4650.8722
      Average Efficiency0.9277
    QuarterDiv PayoutInterest Income ($M)Ratio
    2011-1$ 126,000,000$ 164,000,0000.7683
    2011-2$ 182,000,000$ 201,000,0000.9055
    2011-3$ 252,000,000$ 232,000,0001.0862
    2011-4$ 294,000,000$ 263,000,0001.1179
    2012-1$ 301,250,000$ 406,000,0000.7420
      Average Payout Ratio0.9240

    Here is the spreadsheet model I've used:

    These are the independent variables:

    Share Growth/Quarter40,000,000
    Effective Leverage7.84
    Spread Stability1
    Income Efficiency0.93
    Dividend Payout0.96
    Yield0.18
    Yield Stability1

    Income efficiency is the ratio of "theoretical net income", which is the portfolio value times the interest rate spread, and "actual net income" from the financials. The reason there is a difference is the interest expense and other operating expenses.

    The dividend payout ratio is relatively straightforward. It's the average percentage that is paid out in dividends.

    Interest Stability: I built the model to test what would happen in scenarios of increasing or decreasing interest rate spread. 1.0 is no change, 1.02 is a 2% increase in spread, .98 is a 2% decrease, for example.

    Yield Stability is the same thing: 1.0 is steady yield, using the initial assumption of 18%, 1.02 would be a 2% increase, .98 would be a 2% decrease. A decrease in yield is not all bad, it represents an increase in the stock price.

    Here's the first half of the data table:

    QuarterCommon SharesInterest SpreadPortfolio ValueInterest Income
    2011-190,000,0002.5828,192,000,000164,000,000
    2011-2130,000,0002.4639,900,000,000201,000,000
    2011-3180,000,0002.1441,900,000,000232,000,000
    2011-4210,000,0001.954,800,000,000263,000,000
    2012-1241,000,0002.3180,600,000,000406,000,000
    2012-2281,000,0002.3189,311,111,113479,667,650
    2012-3321,000,0002.31100,731,184,189541,002,007
    2012-4361,000,0002.31112,006,497,472601,558,896
    2013-1401,000,0002.31123,154,722,469661,433,226
    2013-2441,000,0002.31134,189,825,888720,700,007
    2013-3481,000,0002.31145,123,111,926779,419,953
    2013-4521,000,0002.31155,963,909,038837,643,164
    2014-1561,000,0002.31166,720,040,431895,411,657

    and here is the second half:

    Div PayoutDiv/ShareActual PriceModel Price 
    126,000,0001.429.231.11 
    182,000,0001.429.7431.11 
    252,000,0001.429.7131.11 
    294,000,0001.428.0631.11 
    301,250,0001.2530.0727.78 
    460,480,9441.643536.42 
    519,361,9271.62 35.950.18
    577,496,5401.60 35.550.18
    634,975,8971.58 35.190.18
    691,872,0071.57 34.860.18
    748,243,1551.56 34.570.18
    804,137,4381.54 34.300.18
    859,595,1911.53 34.050.18
    Dividends11.00   

    The model price is the output I used for the graphs in the main article.

    Here is Scenario 1, the base case;

    1. Current course, Stable spread  
    Share Increases/Quarter0  
    Effective Leverage7.84  
    Spread Stability1  
    Income Efficiency0.93  
    Dividend Payout0.96  
    Yield0.18  
    Spread Base Level1  
        
        
    QuarterActual PriceWith OfferingsWithout Offerings
    2011-129.231.1131.11
    2011-229.7431.1131.11
    2011-329.7131.1131.11
    2011-428.0631.1131.11
    2012-130.0727.7827.78
    2012-23536.4238.32
    2012-3 35.9538.32
    2012-4 35.5538.32
    2013-1 35.1938.32
    2013-2 34.8638.32
    2013-3 34.5738.32
    2013-4 34.3038.32
    2014-1 34.0538.32
        

    Scenario 2: Decreasing interest rate spread

     

     

    Share Growth/Quarter0  
    Effective Leverage7.84  
    Spread Stability0.98  
    Income Efficiency0.93  
    Dividend Payout0.96  
    Yield0.18  
    Yield Decay1  
        
    QuarterActual PriceWith OfferingsWithout Offerings
    2011-129.231.1131.11
    2011-229.7431.1131.11
    2011-329.7131.1131.11
    2011-428.0631.1131.11
    2012-130.0727.7827.78
    2012-23535.6937.55
    2012-3 34.4536.80
    2012-4 33.2536.07
    2013-1 32.0835.34
    2013-2 30.9534.64
    2013-3 29.8633.94
    2013-4 28.8033.27
    2014-1 27.7832.60

    Scenario 3:

     

     

    3. Interest Rate Spread Slow Increase  
        
    Share Growth/Quarter0  
    Effective Leverage7.84  
    Spread Stability1.05  
    Income Efficiency0.93  
    Dividend Payout0.96  
    Yield0.18  
    yield decay1  
        
        
    QuarterActual PriceWith OfferingsWithout Offerings
    2011-129.231.1131.11
    2011-229.7431.1131.11
    2011-329.7131.1131.11
    2011-428.0631.1131.11
    2012-130.0727.7827.78
    2012-23538.2440.23
    2012-3 39.8642.25
    2012-4 41.8144.36
    2013-1 44.0846.58
    2013-2 46.6748.91
    2013-3 49.6051.35
    2013-4 52.8953.92
    2014-1 56.5856.61

    Scenario 4: Increased Leverage

     

     

    Stable Rates/Higher Leverage  
        
        
    Share Growth/Quarter0  
    Effective Leverage7.84  
    Spread Stability1  
    Income Efficiency0.93  
    Dividend Payout0.96  
    Yield0.18  
    Yield Stability0.98  
        
    QuarterActual PriceWith OfferingsWithout Offerings
    2011-129.231.1131.11
    2011-229.7431.1131.11
    2011-329.7131.1131.11
    2011-428.0631.1131.11
    2012-130.0727.7827.78
    2012-23536.4238.32
    2012-3 37.4439.90
    2012-4 37.9340.71
    2013-1 38.5341.54
    2013-2 39.2242.39
    2013-3 40.0043.26
    2013-4 40.8644.14
    2014-1 41.8045.04

    5. Decaying Yield (stock price steadily going up)

     AGNC Price ModelEnter Values Here
     Share Growth/Quarter40000000 
     Effective Leverage8 
     Spread Stability0.98 
     Income Efficiency0.93 
     Dividend Payout0.96 
     Yield0.18 
     Yield Stability0.97 
        
    QuarterActual PriceIssuanceNo Issuance
    2011-129.231.1111111131.11111111
    2011-229.7431.1111111131.11111111
    2011-329.7131.1111111131.11111111
    2011-428.0631.1111111131.11111111
    2012-130.0727.7777777827.77777778
    2012-23535.7587663937.55240286
    2012-3 36.7726450539.1129289
    2012-4 36.8866582639.51615497
    2013-1 37.063405339.92353801
    2013-2 37.2926458340.33512087
    2013-3 37.5669420440.75094686
    2013-4 37.8807603841.17105972
    2014-1 38.22990503

    41.59550363

    Do with this information what you will.

    Disclosure: I am long AGNC.

    Tags: AGNC, REITS
    Jul 17 8:16 PM | Link | Comment!
  • Air Products Earnings Improvement after Potential APG takeover
    Here is my calculation for the amount of expected earnings available to Air Products because if they could take over Airgas.

    Airgas has no debt and approximately $400M in STA expense per quarter:

    ARG Gross Profit (ttm) 2,290,000,000  
    ARG Taxes              870,200,000 at 38%
    ARG Earnings Cont 1,419,800,000  
    APD Shares Outstanding 213,000,000  
    APD Additional EPS 6.7  

    The difference between ARG's gross profit and their PBT is about $1.5B, which is roughy their annual STA expense.

    The opportunity is for Air Products to roughly double its stock price if it can take Airgas' gross operating margin and not take all of its STA.

    Naturally, the selling and distribution systems of ARG cannot be completely shut down but even if 25% of it can be reduced, it amounts to an additional $20 on the stock price of Air Products, even valued at their current PE.

    At Praxair's PE the benefit in the stock price would be even higher.

    Aug 17 8:36 AM | Link | Comment!
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