American Capital Ltd.
) fourth-quarter 2011 operating income of 24 cents per share
outpaced the Zacks Consensus Estimate by 4 cents. Moreover, the
results outshined the prior-year quarter's earnings by 5 cents per
share. The favorable outcome was due to a rise in fee and interest
and dividend income in the quarter.
Including deferred tax benefit of $428 million, net operating
income for the quarter was $229 million, or 67 cents per share,
significantly up from $67 million or 19 cent per share in the
For full year, net operating income was $448 million, or $1.26
per share, significantly down from $204 million or 62 cents per
share in the prior-year. Excluding deferred tax benefit, net
operating income came in at $303 million, or 85 cents per share,
surpassing the Zacks Consensus Estimate by 3 cents.
Performance in Detail
Total operating income was $160 million in the quarter, up 12%
from $143 million in the prior-year quarter, attributed to higher
fee income and interest and dividend income. Operating income also
was above the Zacks Consensus Estimate of $136 million.
For full year, total operating income was $591 million, down 2%
from $600 million in the prior-year, attributed to lower fee income
and interest and dividend income. However, operating income
outpaced the Zacks Consensus Estimate of $564 million.
Total interest and dividend income for the quarter was $149
million, up 12% from $133 million in the prior-year quarter. The
weighted average effective interest rate on the company's private
finance debt investments as of December 31, 2011 was 10.7%, up 40
basis points at the end of the previous quarter and 50 basis points
higher than the rate as of December 31, 2010. Fee income climbed
10% year over year to $11 million.
Operating expenses remained stable at $76 million compared to
the prior-year quarter, as decline in interest expenses was offset
by higher general and administrative expenses.
As of December 31, 2011, non-accrual loans were $219 million,
representing 8.7% of total loans at fair value, up from $173
million of non-accrual loans, indicating 6.6% of total loans at
fair value as of September 30, 2011.
Net asset value (
) per share came in at $13.87, up 16% or $1.95 per share from NAV
of $11.92 per share as of September 30, 2011. In spite of the
volatile capital markets in the quarter, affecting valuations of
investment portfolio, the overall underlying performance of the
company's portfolio companies continued to be positive. Management
not only anticipates an improvement in the portfolio along with an
economic recovery, but also expects to post a growth in book
American Capital's asset coverage ratio improved substantially
to 465% from 364% in the prior quarter. The company repaid debt of
$1 billion and increased investments by $300 million while
strengthening its balance sheet.
Share Repurchase and Dividend Update
During the third and fourth quarters of 2011, American Capital
repurchased 17.6 million shares worth $134 million, at an average
price of $7.61 per share.
In the prior quarter, American Capital adopted a new program for
additional repurchases of shares or dividend payments through
December 31, 2012. To begin with the new program, American Capital
has planned to keep aside certain amount either for stock
repurchases or dividend payments, quarterly. The quarterly amount
will depend on the company's cumulative net cash from operating
activities in the prior quarters.
Further, cash and cash equivalents in hand, cumulative
repurchases or dividends, debt position, investment plans and
operational issues will also be the determining factors for the
quarterly amount. Last but not the least, the current trading price
of American Capital's common stock, financial liquidity and ongoing
economic conditions will also be taken into consideration.
As per the company's plan, if the price of American Capital's
common stock trade at a discount to the net asset value of shares,
the company will opt for share repurchase. On the flip side, if the
price of American Capital's common stock trade at a premium to the
net asset value of shares, the company will opt for dividend
The authorization of the new share buyback program and
resumption of dividend payments raise our hopes for enhanced
Among American Capital's peers,
Fortress Investment Group LLC
Ares Capital Corporation
), are scheduled to release their earnings for the fourth quarter
of 2011 on February 28, 2012.
Recently, in January 2012, American Capital announced the
divesture of its portfolio company CIBT Solutions Inc. (CIBT). The
unit was acquired by ABRY Partners in mid-December 2011 for $215
million. The company has earned 15% compounded annual rate of
return over the life of its total debt and equity investments,
including interest, dividends fees and expected escrow
During the quarter, American Capital announced an investment of
$10 million in order to support RBC Capital Markets Corp.'s
syndication of $75 million Second Lien Term Loan financing. The
loan financing will facilitate Permira Advisors LLC to acquire
Renaissance Learning Inc. Further, the company announced its
plan to invest $15 million to support BMO Capital Markets'
syndication of $100 million Second Lien Term Loan financing. The
loan financing will help Teachers' Private Capital to purchase the
majority stake of Flexera Software Inc.
American Capital has the capability to provide flexible
financing solutions ranging from a variety of senior debt and
uni-tranche to mezzanine and equity co-investments. Further, the
company provides multi-currency funding with underwriting platform
globally while boosting growth of portfolio companies. Such
benefits provided by American Capital urge private equity clients
to consider it as an investment partner, which in turn, helps in
the company's growth.
American Capital's successful restructuring of debt provided it
with sufficient operating flexibility and the company also
continues to derisk its balance sheet through a number of
initiatives including repayment of debt. However, we believe
limited accessibility to capital and increased funding costs have
weakened the company's strategic position in its sector. Moreover,
the improved portfolio performance is expected to continue along
with the economic recovery.
American Capital currently retains its Zacks #3 Rank, which
translates into a short-term (1−3 months) 'Hold' rating.
Considering the fundamentals, we are also maintaining a "Neutral"
recommendation on the stock.
AMER CAP LTD (
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