American Capital Strategies - Possible Upside
- 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
- Possible upside
- The company pays an attractive dividend that it has increased annually every year since its IPO in 1997.
- The company's stock has outperformed the larger stock market in all but one year since going public.
- The company has shown robust operations over its public history, a period that spans a previous credit crisis in 1998 (LTCM, Russian default, Asian currencies), a stock market implosion with the dot-com bust in 2000 and the recession that followed in 2001/2002. This suggests the company will hold up even if an American economic slowdown is on its way.
- Conservative approach to building assets combined with a shareholder friendly stance as evidenced by the DRIP discount.
- AmCap's ability to buy out companies as well as providing debt financing (One-Stop Buyout) gives it an advantage over other BDCs and private equity funds.
- The company estimates it has one of the lowest costs of capital in the business (8 - 10% vs. 15 - 20% for private equity funds).
- Current market turmoil could present bargain opportunities.
- Historically, dividend payouts have been mostly covered by NOI, give or take a few percentage points. The company also pays a small tax penalty to retain earnings, thus cushioning any impact to future dividends.
- Over the last few years, AmCap has steadily moved up the capital structure in their portfolio investments. Senior debt is now the largest component of their portfolio (@ ~30%) as opposed to subordinated debt (~20%)or equity. In 2001, subordinated debt dominated their portfolio at over 50%.
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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