- In the past several months, a number of business development companies have experienced declines and are now trading below net asset value.
- The recent turmoil in the oil patch is the first situation in which business loans made since 2009 are perceived to be at risk of default on a large scale.
- Thus, business development companies face the risk of significant losses on loans and the consequent reduction in dividends and decline in net asset value.
- Concern about this danger and other factors have led stocks in the sector to decline to levels well below net asset value and have created some bargains.
- I will first analyze American Capital which, I believe, is one of the biggest bargains in the sector.
American Capital: Acquire Emerging Alternative Asset Manager At Large Discount
- The stock of American Capital Inc. offers opportunity to acquire diversified portfolio of middle market debt and equity investments at significant discount to NAV.
- Company is in process of the game-changing spin-off transactions that should close the discount and unlock value of hidden assets.
- Following the separation of 2 newly formed BDCs, investors will end up with a highly valuable alternative asset management company at huge discount to its intrinsic value.
American Capital, Ltd. - Significant Upside From Upcoming Restructuring Plan
- Since ACAS announced a proposed restructuring plan a month ago, ACAS's stock price is up only 3.0% and remains at a significant discount to its NAV (26%).
- The market is significantly undervaluing ACAS due to skepticism about the restructuring plan, and is waiting for more details from ACAS regarding the plan and its timing.
- ACAS has been transforming its balance sheet over the past year by successfully selling many of its equity investments and reinvesting proceeds into income producing secured debt investments.
- In advance of more details from the Company about the restructuring and its timing, this article estimates ACAS to be worth approximately $21.75 to $26.00 on a fully diluted basis.
American Capital Investment Outlook - Quarterly Update
- American Capital's Q3 earnings continue to show NOI improvement.
- Management focus on recurring income streams and expense reduction initiatives bodes well for 2015 stock price appreciation.
- Announces formal plan to spin-off dividend paying investment assets to shareholders.
Update: American Capital Q3 '14 Earnings And Split Into Three Companies
- American Capital reported Q3 '14 earnings and split up details.
- Stock remains a buy with NAV solidly above stock price.
- The attractive split was anticipated to add value, but the complexity of the transaction will possibly delay the value enhancement of the plan.
- Accounting for dilution at options exercise, assets are worth $18.22 per share pre-split.
- Impending separation into three entities will reduce confusion about value and improve pricing for the post-split asset manager.
- Changes in regulatory treatment as a non-BDC will allow more aggressive compensation terms in management agreements, improving earnings growth.
The American Capital Party Is Just Getting Started
- Even with ACAS shares up significantly after-hours, substantial appreciation potential remains.
- The NRF/NSAM spinoff serves as a good "mental model" for the ACAS spin-offs.
- Management should be commended for unlocking significant shareholder value.
American Capital: 50% Upside With Downside Protection
- American Capital (ACAS) is a BDC which is generating strong cash flow but not paying dividends due to a large tax loss carry forward.
- Its current net asset value (NAV) is $20.12 so that it is trading at a discount of 31%.
- ACAS is planning to implement a restructuring which should unlock its true value with the resulting equities trading at or above current NAV.
- If, for some reason, the restructuring does not take place, ACAS will almost certainly resume share repurchases which will drive the price up to the $16-17 level.
- NAV will tend to increase at roughly 10% per year while this scenario is playing out - providing further downside protection.
- News frequently characterizes ACAS' business-as-usual news as negative.
- Complexity in ACAS' operations and reorganization plans precludes sound-bite synopses and headlines.
- Until ACAS reorganizes to separate funds management from managed funds, marketplace confusion should persist regarding the company's outlook and valuation.
American Capital's 2nd Quarter Results Show Transformation Progress
- Net operating income shows sequential growth and appears to have bottomed.
- Management's investment focus on debt and more stable recurring income is starting to appear on financial statements.
- Current share price discount to book value continues to present an attractive risk-reward opportunity.
- American Capital reported Q2 '14 earnings.
- Investors should continue holding the stock and even add to positions at the significant discount.
- Despite the supported move to unlock value, the stock has not closed the gap with NAV as anticipated.
American Capital, Ltd: A Great Investment Opportunity As The Business Development Corporation Transforms Into An Asset Manager
- Forecasted price appreciation of 31-45% with comparatively low risk.
- Asset management subsidiary's "Earning Assets under Management" (EAUM) projected to grow 20%.
- Interest income from senior secured debt to provide more stable income streams.
- Increased leverage to help drive income throughout 2014.
American Capital Is Attractive Below $15: Here's Why
- American Capital (ACAS) current price of $14.73 offers the investor a discount of 26% to the true value of $19.81.
- ACAS management has been shareholder oriented and is currently exploring restructuring alternatives that may unlock substantial latent value.
- ACAS has a subsidiary, American Capital Asset Management, which may be the focus of the restructuring and which could generate substantial value for investors.
- Substantial buyback ends after 3 years of purchases below NAV.
- Reducing the complexity of the corporate structure should boost valuation.
- ACAM has several initiatives to grow funds under management to further drive growth.
Nov. 5, 2014, 4:27 PM
- American Capital (NASDAQ:ACAS) will spin off two BDCs - American Capital Growth and Income and American Capital Income - leaving ACAS primarily in the asset management business.
- American Capital Growth and Income's assets will be those primarily issued by companies purchased through American Capital One Stop Buyouts, senior floating rate loans to private companies, and CLO equity investments. This business is at present allocated about $3B of equity.
- American Capital Income's assets will mostly be second lien and mezzanine loans to middle market companies. This business is at present allocated about $1B of equity.
- Both new BDCs will be managed by American Capital. As part of the deal, American Capital will consolidate its operations and remaining assets with American Capital Asset Management. This business at present allocated about $1B of equity.
- The company expects about $25M in cost savings annually, beginning in 2015.
- Source:; Press release
- Previously: American Capital beats by $0.02, beats on revenue
- The earnings conference call is set for tomorrow at 11 ET
- Shares +9.5% after-hours
Nov. 5, 2014, 4:14 PM
Nov. 4, 2014, 5:35 PM
- ABTL, ACAS, ACLS, ALNY, ALSK, ANDE, AR, AREX, ASH, ATO, ATSG, AVG, AWK, BALT, BCOR, BIOS, BKD, BREW, BWC, CBS, CDE, CF, CLR, CODI, CPE, CSOD, CTL, CVG, CXO, DATA, DEPO, DK, DPM, DRYS, DVR, DYN, ECOL, ECYT, EFC, ENS, ENSG, ETE, ETP, EXAR, EXXI, FMI, FNV, G, GNW, GPOR, GSM, HOLX, HTCH, IL, INWK, IO, JCOM, KGC, KW, LBTYA, LHCG, LPSN, MBI, MCHX, MCP, MDR, MDWD, MED, MHLD, MIDD, MRIN, MTDR, MTRX, MUSA, MWE, NDLS, NLY, NVAX, NWSA, OILT, ORA, ORIG, OSUR, PAA, PLNR, PMT, PODD, POWR, PPO, PRGN, PRU, PTC, QCOM, QEP, QUAD, RGP, RNDY, RUTH, SB, SBY, SCTY, SD, SKUL, SLF, SSNI, SSRI, STMP, SUSP, SWIR, SWM, SXL, SYMC, SZYM, TCAP, TEAR, TEG, TERP, THOR, TNGO, TPC, TRAK, TROX, TRUE, TS, TSLA, TSRO, TTEC, TXTR, UHAL, VVUS, WBMD, WFM, WMC, WMGI, WR, WTI, WWWW, XPO, Z
Aug. 6, 2014, 4:47 PM
- Q2 net realized earnings of $19M or $0.07 per share off 14% from a year ago. Net unrealized appreciation of $193M or $0.69 per share up from essentially zero one year ago.
- NAV per share of $20.12 up $0.83 (17% annualized) from Q1, up 4% from a year ago. Today's close of $15.32 is a 23.9% discount to NAV.
- Management is finding the task of separating the management business from the rest of the company a difficult one, but nevertheless expects to have something concrete to present in Q4.
- Previously: American Capital misses on revenue
- ACAS -0.45% AH
Aug. 6, 2014, 4:34 PM
Aug. 5, 2014, 5:35 PM
- ACAS, AGU, ALDW, ANAD, ANDE, AR, ATML, ATO, AWK, BIOS, BIRT, BKD, BREW, BWC, CDE, CDXS, CF, CLDX, CNVR, CODI, COUP, CPA, CPE, CRL, CSII, CSOD, CTL, CXO, CXW, DCTH, DEPO, DK, DNB, DXCM, DYN, ECOL, EFC, ELON, ENS, ENV, ERII, ESS, ETE, ETP, EVC, EXAR, FLTX, FNV, FOXA, FTK, GEOS, GMCR, GPOR, GTY, HI, HIL, IL, INN, INWK, IO, ITMN, IXYS, JACK, KEG, KND, KW, LGP, LHCG, LNT, MBI, MCP, MG, MHLD, MNTX, MRIN, MTDR, MUSA, MWE, NBIX, NLY, NPSP, NRP, NVAX, NVTL, OILT, OSUR, PAA, PACD, PKT, PMT, PPO, PRI, PRU, PRXL, PTLA, QEP, RAIL, REG, RGP, RIG, RJET, RLOC, RNDY, RXN, SAAS, SAPE, SD, SGI, SLF, SN, SSNI, SSRI, SWM, SXL, SYMC, TCAP, TEG, TEP, THOR, THRX, TNGO, TRMR, TROX, TWO, TXTR, UHAL, UIL, WGL, WR, WTI, XNPT, YY, ZU
May. 7, 2014, 4:28 PM
- Pretax NOI of $16M or $0.06 per share falls 69% from Q4.
- Book value per share of $19.29 up $0.32 from the end of Q4.
- 8.9M shares repurchased at average price of $15.38 each. Repurchases have stopped as company retains Goldman to advise on splitting ACAS's investments and asset management businesses.
- CC tomorrow at 11 ET
- Previously: American Capital beats by $0.05, misses on revenue
- Source: Press Release
- ACAS +2.5% AH
May. 7, 2014, 4:26 PM| Comment!
May. 6, 2014, 5:35 PM
- ACAS, ANAC, ANDE, APU, AR, ASYS, ATLS, ATO, AVG, AWK, BALT, BKD, BODY, BREW, BRKR, CAR, CDE, CDXS, CF, CLR, CODI, COUP, CSLT, CTL, CTRP, CXW, CZR, DCTH, DK, DYN, ERII, ESS, EXPD, FANG, FMI, FNV, FURX, GEOS, GMCR, GPOR, GTAT, GTY, HAIN, HK, HNSN, IL, IPAR, KGC, KIM, KND, KW, LCI, LGP, LHCG, LPSN, LXU, MCP, MDR, MHLD, MIDD, MKL, MM, MRIN, MWE, NKTR, NLY, NRP, NSTG, NVAX, NVEC, NVTL, OSUR, PAA, PGTI, PHH, PL, PMT, PNNT, PODD, POWR, PRU, QEP, QTM, RATE, REG, RIG, RNDY, RST, SCMP, SCTY, SD, SFM, SN, SWM, TCAP, TGB, TGI, TROX, TSLA, TWO, TWTC, TXTR, UGI, UIL, UNM, WGL, WR, WTR, XOMA, Z.
Feb. 10, 2014, 5:33 PM
- Net asset value per share of $18.97 is off 2.9% from $19.54 on Sept. 30, and up 6% from a year ago. Stock closed at $15.94 today.
- 8.9M shares repurchased during Q at average price of $14.88 each, adding $0.13 to NAV per share. For full year, 40.4M shares repurchased for at average price of $13.90 each, adding $0.66 to NAV per share.
- Fall in NAV in Q4 largely the result of the struggles of American Capital Asset Management (AGNC and MTGE) - $185M charge for unrealized depreciation due to reduction in projected management fees. There's also a $152M depreciation charge in American Capital's private finance portfolio driven by declining specific company performance, offset by $115M in unrealized appreciation in European Capital investment.
- CC tomorrow at 11 ET
- Press release, Q4 results
- ACAS -5.9% AH to $15.00.
Feb. 10, 2014, 5:13 PM| 1 Comment
Feb. 10, 2014, 12:10 AM
Feb. 9, 2014, 5:35 PM
Nov. 5, 2013, 4:44 PM
- Net operating income of $0.16 per share compares to $0.21 in Q2 and $0.27 a year ago. Net asset value of $19.54 per share is up from $19.28 at the end of Q2 and up 12% Y/Y. Compares to today's close of $14.32.
- Not immune to the difficulties of the mortgage REIT sector, ACAS takes a writedown of $119M due to a reduction in projected management fees from American Capital Agency (AGNC) and American Capital Mortgage (MTGE). NOI for the entire quarter was $47M.
- $218M of cash from realizations received during quarter, including $37M from European Capital, which also paid down $79M of its unsecured credit line for a total of $116M in cash proceeds.
- New commitments of just $62M with weighted-average effective interest rate of 10.8%, up 40 bps from Q2. "Though we reviewed and bid on a considerable number of sponsor finance and buyout opportunities, originations were low this quarter," says the firm's Gordon O'Brien.
- Non-accruing loans fell $76M to $245M as two portfolio companies moved into improved performance bucket. Total loans on non-accrual are valued at 56.5% of cost, down 13.7% from Q2. Estimated loss on total loans at cost of $130M, or 8.2%. NOI of $0.16 was reduced by $0.10 due to net impact of investments added/removed from non-accrual status.
- Company expects more action in Q4 and has already closed the recapitalization of CML while merging it with AAIPharma.
- Buybacks: 13.4M shares at average price of $13.11 each. Since start of program in August 2011, company has repurchased 83.8M shares (24% of float) at average price of $11.02.
- Q3 results, press release.
- CC tomorrow at 11 ET.
- ACAS +0.2% AH.
Nov. 5, 2013, 4:07 PM
Nov. 5, 2013, 12:10 AM
- ACAS, AGU, ANV, APEI, ASIA, AXLL, BCOR, BLMN, BMR, CBL, CHRW, CKEC, CTRP, CWT, DEPO, DOX, DPM, DVA, ENPH, EOX, EPR, ETE, ETP, FNGN, FOSL, FOXA, FTR, FURX, GEVO, GHDX, GIVN, GPOR, GTY, HAIN, IAG, IMPV, ININ, JAZZ, JCOM, JKHY, KAR, KND, LLNW, LXU, LYV, MCEP, MED, MELI, MIDD, MKTG, MSPD, MYGN, NRP, NYMT, OKE, OKS, OPEN, ORA, PZZA, QEP, QUAD, REGI, REXX, RGP, RGR, SALE, SAPE, SD, SGEN, SREV, SSRI, SSS, SXL, SYNC, SZYM, TNGO, TSLA, TWO, URS, VCLK, VRSK, VVUS, WWWW, Z, ZAGG
ACAS vs. ETF Alternatives
American Capital Ltd is an asset management and private equity firm. The Company originates, underwrites and manages investments in middle market private equity, leveraged finance, real estate, energy and structured products.
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