Seeking Alpha

Another slide in book value at American Capital; early Q1 looking good

  • Net spread and dollar roll income of $0.75 per share. Net interest spread of 1.39% is up 2 basis points from Q3. Estimated taxable income of $0.65 per share equals the dividend.
  • Book value per share of $23.93 is off $1.34 or 5% from the end of Q3.
  • 28.2M shares or 7% of the float repurchased during Q at average price of $20.82 each. Share repurchase program is boosted by $1B to $2B.
  • Portfolio size of $68.2B with leverage at 7.5x. CPR of 8% during the quarter.
  • CIO Kain sounds like he caught the nice move lower in rates this year: "Market conditions (at year's end) were decidedly more stable and many of the idiosyncratic risks that we faced earlier in the year had abated ... As such, we were considerably more comfortable positioning the portfolio with a larger duration gap as we moved forward toward a more normal balance between risk and return. Given the decline in interest rates and the strong performance of agency MBS in January, we have already seen a meaningful increase in our book value."
  • CC tomorrow at 11 ET
  • Press release
  • AGNC was initially down about 3% AH, but the last trade shows the shares flat at $21.06, a 12% discount to Dec. 31 book.
Comments (13)
  • William Packer
    , contributor
    Comments (276) | Send Message
     
    Rates were 3% when this book value was taken.. and since then duration gap is even bigger... book value could be $26-$27 range today if the gap was widened. Definitely meaningfully higher.
    3 Feb, 04:24 PM Reply Like
  • jeffc42
    , contributor
    Comments (9) | Send Message
     
    Perhaps. Don't forget they are massively hedged, and that limits the upside as much as the downside.
    3 Feb, 05:05 PM Reply Like
  • William Packer
    , contributor
    Comments (276) | Send Message
     
    Jeff they reduced hedges in Q4.. see presentation.
    3 Feb, 05:30 PM Reply Like
  • ChuckJ
    , contributor
    Comments (72) | Send Message
     
    The full scoop on $AGNC

     

    Fourth Quarter 2013 Financial Highlights
    " $(0.99) comprehensive loss per common share, comprised of:
    o $(0.28) net loss per common share
    o $(0.71) other comprehensive income/(loss) ("OCI") per common share
    " Includes net unrealized losses on investments marked-to-market through OCI
    " $0.75 net spread and dollar roll income/(loss) per common share, comprised of:
    o Interest income, net of cost of funds (including interest rate swaps) and operating expenses
    o Estimated net carry loss (also known as "dollar roll income/(loss)") of $(0.02) per common share associated with the Company's net short position in agency mortgage backed securities ("MBS") in the "to-be-announced" ("TBA") market
    o Estimated "catch-up" premium amortization benefit of $0.07 per common share due to a change in projected constant prepayment rate ("CPR") estimates
    " $0.65 estimated taxable income per common share
    " $0.65 dividend per common share declared on December 18, 2013
    " $0.59 estimated undistributed taxable income per common share as of December 31, 2013
    " $23.93 net book value per common share as of December 31, 2013
    o Decreased $(1.34) per common share, or -5%, from $25.27 per common share as of September 30, 2013
    " -2.7% economic return on common equity for the quarter, or -10.8% annualized
    o Comprised of $0.65 dividend per common share and $(1.34) decrease in net book value per common share
    Other Fourth Quarter Highlights
    " $68.2 billion agency MBS investment portfolio as of December 31, 2013
    o Includes $2.3 billion net long TBA mortgage position as of December 31, 2013
    " $237 million investment in mortgage REIT equity securities as of December 31, 2013
    o Consists of common stock investments across the agency mortgage REIT sector
    " 7.5x "at risk" leverage as of December 31, 2013
    o 7.3x leverage excluding net long TBA mortgage position as of December 31, 2013
    o Increase of 0.3x from September 30, 2013 "at risk" leverage of 7.2x
    " 7.5x average "at risk" leverage during the quarter
    o 7.6x average leverage during the quarter excluding net TBA mortgage position
    " 8% actual portfolio CPR for the quarter
    o 7% average projected portfolio life CPR as of December 31, 2013
    o Excludes net TBA mortgage position
    " 1.39% annualized net interest rate spread as of December 31, 2013
    o Increase from 1.37% annualized net interest rate spread as of September 30, 2013
    o Excludes net TBA mortgage position
    " 1.56% annualized net interest rate spread and TBA dollar roll income/(loss) for the quarter
    o Includes -1 bps of estimated TBA dollar roll loss
    o Includes 14 bps of "catch-up" premium amortization benefit due to change in projected CPR estimates
    " 28.2 million shares of common stock repurchased during the quarter
    o Represents 7% of common shares outstanding as of September 30, 2013
    o $20.82 per share average repurchase price, net of expenses
    o Existing share repurchase authorization increased by $1 billion to $2 billion for total purchases of outstanding shares of common stock since the inception of the buyback program through December 31, 2014
    2013 Full Year Financial Highlights
    " -12.5% economic return on common equity
    o Comprised of $3.75 in dividends per common share and $(7.71) decrease in net book value per common share
    " $(4.47) comprehensive loss per common share, comprised of:
    o $3.28 net income per common share
    o $(7.75) OCI per common share
    " $2.48 estimated taxable income per common share
    o Estimated undistributed taxable income decreased from $2.18 per common share as of December 31, 2012 to $0.59 per common share as of December 31, 2013
    " 57.5 million shares of common stock issued during the year
    o $31.33 per share offering price, net of expenses
    " 40.3 million shares of common stock repurchased during the year
    o $21.25 per share average repurchase price, net of expenses

     

    ChuckJ
    3 Feb, 06:02 PM Reply Like
  • Pablomike
    , contributor
    Comments (1201) | Send Message
     
    Did you see the $237M in common stock of their competitors??? Not only buying back their own stock but the shares of others too.
    3 Feb, 08:31 PM Reply Like
  • Dividends#1
    , contributor
    Comments (2185) | Send Message
     
    Pablomike,

     

    What are you referring to? Can you be more specific?
    3 Feb, 09:08 PM Reply Like
  • Pablomike
    , contributor
    Comments (1201) | Send Message
     
    Under "Other 4Q highlights" the press release lists $237M of "common stock investments across the agency mortgage reit sector." I thought it was kind of odd. They think they can do better investing in their competitors than their own MBS???
    4 Feb, 10:16 AM Reply Like
  • COBeeMan
    , contributor
    Comments (1252) | Send Message
     
    Why buy more mortgages when you can buy other mortgage buying companies at a 15% discount? They all have a slightly different mix and no one has a crystal ball for this environment.
    Along those lines, I'm buying MORL every time it dips below $19.
    4 Feb, 11:35 AM Reply Like
  • Pablomike
    , contributor
    Comments (1201) | Send Message
     
    CC: Gary Kain says $400M in stocks of others.
    4 Feb, 02:48 PM Reply Like
  • xxavatarxx
    , contributor
    Comments (2054) | Send Message
     
    Interesting move by Gary. : )
    4 Feb, 04:13 PM Reply Like
  • Pablomike
    , contributor
    Comments (1201) | Send Message
     
    He has a point. Buy MBS at full price or buy mREITs at 20% discount?? I'm buying back in.
    4 Feb, 07:28 PM Reply Like
  • 10392701
    , contributor
    Comments (31) | Send Message
     
    Hated further 5% decline in book considering their hedges-- kain seems to have a distinct ability for fighting last quarter's war each quarter. On the other hand agnc seems to be in a reasonably strong position to defend the distribution. spread ended at 132 and averaged higher during the quarter. expect spread will average higher in Q1 . Interestingly they shrunk the agency assets by 20B-- that's huge. Also, thankfully they bought back 500M of shares at well below book--accretive. AGNC has also expanded its buyback size by 1B
    which is enormous considering both the lower share base and the fact that today I would bet agnc is selling materially below book (guessing 20%). more accretive buybacks.
    all in all I had to overlook Kain's prior awful mortgage positioning and I bought more agnc (also own mtge) as the margin of safety below liquidation value is just too good to ignore.
    3 Feb, 09:04 PM Reply Like
  • Gtarras
    , contributor
    Comments (412) | Send Message
     
    "I would bet agnc is selling materially below book (guessing 20%)"

     

    as of today it could be even as high as 25-30%
    4 Feb, 04:18 AM Reply Like
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