market folly

Next up in our notes from Invest For Kids Chicago 2013 is Steve Kuhn of Pine River Capital.  He pitched American Capital (ACAS).


Steve Kuhn's Presentation At Invest For Kids Chicago

•    American Capital (ACAS): a Fabulous Fish out of Water
•    BDC with three business lines
o    Debt & Equity in US companies
o    Debt & Equity in European companies
o    Asset management arm
•    Tax treatment similar to REITs yet pay out all earnings in dividends
•    Sector is slightly at a premium to book value
•    Dividend value of 9.8%
•    ACAS is trading at 0.73x but doesn’t have a dividend
•    In 2008 they had a giant NOL carryforward
•    But using NOL was a better strategy than paying out divided so they converted to a C-Corp and are using the NOLs
•    Repurchased 27% of stock in the last 2 years which added over $1.50 per share to book value since June 2011
•    Average price to book of repurchase is 0.66x
•    Going to buy back 15% of equity now
•    On the “naughty list “ of diluters such as Citi and BofA is 0.7x
•    Book value growth has been at a CAGR of 38%
•    Book value of the asset management business is $3 per share
•    AUM of 14 billion
•    3 CLO deals this year – plan for additional products and business lines
•    Company values business at $1 billion yet it makes $120 million per year (super conservative valuation – could be worth $500 million more)
•    By 2016 Book value could be a s high at $26 per share 
•    ACAS has 3 years of tax shield of three more years then probably reinstates a dividend
•    Think portfolio value could increase as well and could underpin a $28 per share valuation
•    Management has 250 million reasons (options) to make this happen – would increase to a value of $105 million
•    Book value of $19.28 and trading at $14.20 


Check out the rest of the hedge fund presentations from Invest For Kids Chicago here.