American Capital Remains Neutral - Analyst Blog
07 10월 2011 - 1:39AM
Zacks
We maintain our Neutral recommendation on American
Capital Ltd. (ACAS) as second-quarter 2011 earnings were
in line with the Zacks Consensus Estimate. However, the results
were ahead of the prior-year quarter’s earnings.
In August, American Capital reported second-quarter 2011
operating earnings of 20 cents per share, in line with the Zacks
Consensus Estimate. The results were ahead of the prior-year
quarter’s earnings of 9 cents per share. The favorable outcome was
attributable to a drop in operating expenses, partially offset by a
decline in interest and dividend income in the reported
quarter.
American Capital is focused on de-leveraging and de-risking its
balance sheet. The company met the goal of reducing leverage and
operated with an average debt-to-equity ratio of about 0.6 to 1.0
at the end of 2010 followed by 0.4 in the first two quarters of
2011. The company intends to raise leverage in future based on
balance sheet securitizations.
During the quarter, American Capital was boosted by its success
in 2010 and in first-quarter 2011, and continued to strengthen its
balance sheet. The company paid down an additional $100.0 million
of debt and improved its asset coverage ratio to 376.0%. The
company continued to see strong liquidity in its portfolio during
the quarter, focusing on maximizing the value of investments
through organic growth for generating shareholder value.
During the second quarter of 2011, net asset value per share
grew $1.19 over the prior quarter to $13.16, delivering a 38.0%
annualized return on equity. The company has experienced eight
successive quarters of net earnings on investments, and earned
$844.0 million in the first half of 2011, an 80.0% surge over the
prior-year period.
Further improvement of the portfolio performance depends on the
economic recovery and therefore American Capital remains focused on
improving balance sheet, growing portfolio companies and initiating
high quality investment opportunities.
On the flip side, as a Business Development Company (BDC),
American Capital’s asset coverage must be at least 200%. With the
company achieving asset coverage of 376% at the end of the second
quarter, it plans to resume its cash dividend payments by the end
of 2012. However, the company expects to incur a taxable ordinary
loss along with a net long-term capital loss in the near term,
which might act as a deterrent in the dividend payment.
Furthermore, American Capital was significantly impacted by the
negative developments in the financial markets worldwide over the
past three years. The global financial crisis limited the company’s
access to the debt and equity capital markets, resulting in
significant depreciation of its investment portfolio and
overleveraging of its balance sheet.
The market disruption and liquidity crisis also dramatically
reduced the volume of mergers and acquisitions in the market place,
thereby affecting the company’s ability to continue generating
additional liquidity through the sale of portfolio investments. The
company also suffered payment defaults on its financial
obligations. Though situations are slowly easing off, we do not
expect stability to come in the near future.
American Capital currently retains a Zacks #3 Rank, which
translates into a short-term Hold rating. American Capital’s
closest competitor – MCG Capital Corporation
(MCGC) also retains a Zacks #3 Rank.
AMER CAP LTD (ACAS): Free Stock Analysis Report
MCG CAPITAL (MCGC): Free Stock Analysis Report
Zacks Investment Research
American Capital Strategies (NASDAQ:ACAS)
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American Capital Strategies (NASDAQ:ACAS)
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