American Capital Strategies - Assessment
- American Capital Strategies (part 1) report written 09/20/2007
- Part 2 - Risk Detail
- Part 3 - Possible Upside
- Part 4 - Competitor Review
- Part 5 - Valuation and Assessment
- Part 6 - Management & Performance Targets
** Integrity: A-. Malon Wilkus, President & CEO:
Wilkus founded the firm in his living room and has brought the company from 17 employees and $150M in capital to over 500 employees and over $11B in assets under management. Over the last ten years, American Capital has paid out over double its initial IPO price and its share price has beaten the S&P500 benchmark in all but one year, progressing through one credit crisis, a major terrorist attack and a recession. That is an impressive track record.
** Past Performance: A
See above.
Risked Outcome Probabilities
- Exceeds our intrinsic valuation to $57: 5%
- No write-down in NAV, transition to asset mgmt goes well, economic slow down doesn't happen or hits ACAS relatively lightly
- 1.28
- Reaches our intrinsic valuation to $50: 20%
- Small write-down in NAV, the company deals with credit/market issues relatively better than competitors
- 3.67
- Appreciates to current levels ($41): 20%
- The company struggles along at the same rate as competitors.
- 1.87
- Floats around entry price: 20% (due to opportunity cost, time loss of money, we penalize a flat result)
- Shorts are correct - company takes a sizable hit to NAV similar to 1998/99 capital.com but follows history by recovering
- -0.07
- Drops by 20%: 20%
- Takes a big hit to NAV, company doesn't follow past operating history and struggles along
- -0.65
- Down by half: 10%
- Recession, company experiences major writedowns and defaults
- -1.40
- Goes to zero: 5%
- Fiscal disaster
- -1.60
Total Score: 3.10
Certainty Rating: B-
My risk projections suggest that I anticipate a higher chance of a poor outcome (55% total) than a positive outcome. But the dividend and the smaller chance of a disastrous result make this a good play if the price is right. The risk would be a stagnant or slowly-declining share price as opposed to the stock going to zero.
My main concern is really the US currency and how that would dilute any investment that is so concentrated domestically, big dividend or not. I like the asset class diversification and the dividend is nice so the risk would be worth it should it reach our price.
- Performance Measurements:
- Maintain net asset value trend (up).
- Continue transition to asset management as well as private fund establishments (12 month timeline).
- Begin generating returns on the increased operating expenses of the last year or so.
- Maintain the historic operating trends (increasing dividends, NAV, etc.)
- Widen credit spreads throughout the current crunch
- Manage the inevitable loan portfolio degradation
DISCLOSURE: Please see our portfolio page for all disclosures.
This report reflects the research and analysis I've performed on this company. It is provided for informational purposes only and does not constitute personalized financial advice nor an endorsement or solicitation to purchase stock in this or any other company. Please do your own due diligence or hire a financial advisor before making any investment decisions.
The author received no compensation and is not affiliated with the company reviewed in this report with the possible exception of being a shareholder. The author reserves the right to buy or sell the stock as deemed personally prudent without further notification
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