American Capital Ltd.
) reported fourth-quarter 2012 operating income of 26 cents per
share, beating the Zacks Consensus Estimate by a penny. However,
the results compared unfavorably with the prior-year quarter's
earnings of 67 cents per share.
Better-than-expected results were attributable to top-line
growth, followed by decreased operating expenses reflecting
prudent expense management. Moreover, new investments and
reduction of debt acted as positives. Yet, the low interest
environment during the quarter was a negative.
Net operating income for the quarter came in at $83 million, down
from $229 million reported in the prior-year quarter. Net
earnings were reported at $123 million, or 38 cents per share,
against $594 million or $1.73 per share in the prior-year
For full year 2012, net operating income was $397 million or
$1.20 per share, down from $448 million or $1.26 per share
reported in the prior-year. However, the reported earnings
outpaced the Zacks Consensus Estimate by 15 cents.
Performance in Detail
Total operating income was $180 million in the quarter, up 13%
from $160 million in the prior-year quarter, due to higher
interest and dividend income and elevated fee income.
Additionally, operating income significantly surpassed the Zacks
Consensus Estimate of $148 million.
For full year 2012, total operating income was $646 million in
the quarter, up 9% year over year. Additionally, operating income
beat the Zacks Consensus Estimate of $561 million.
In the quarter under review, total interest and dividend income
was $157 million, up 5% from $149 million in the prior-year
quarter. The weighted average effective interest rate on the
company's debt investments as of Dec 31, 2012, was 11.4%,
increasing 70 basis points from the end of the prior-year
quarter. Moreover, fee income more than doubled on a
year-over-year basis to $23 million.
Operating expenses declined 14% year over year to $65 million.
The fall in expenses was a result of significant decline in
interest expenses and lower general and administrative expenses,
partially offset by elevated salaries, benefits and stock-based
As of Dec 31, 2012, non-accrual loans were $177 million,
representing 9% of total loans at fair value, down from $252
million of non-accrual loans, indicating 12.5% of total loans at
fair value, as of Sep 30, 2012.
Net asset value (NAV) per share came in at $17.84 in the quarter,
up 2.6% or 45 cents per share sequentially. In spite of the
volatile capital markets affecting valuations of the investment
portfolio in the quarter, the overall underlying performance of
American Capital's portfolio companies continue to remain
positive. Management not only anticipates an improvement in the
portfolio along with an economic recovery, but expects to post an
enhanced book value.
American Capital's asset coverage ratio improved substantially to
801% from 465% in the prior year. The company repaid securitized
debt of $487 million in the year 2012 and increased investments
by $719 million while strengthening its balance sheet. Moreover,
the company recorded $1.5 billion of cash proceeds from
realizations of portfolio investments during the year.
Share Repurchase Update
During the fourth quarter of 2012, American Capital repurchased
8.8 million shares worth $103 million, at an average price of
$11.72 per share. Since the beginning of the new repurchase
program, adopted in Sep 2011, the company repurchased 52.4
million shares of common stock for $495 million at an average
price of $9.46 per share.
American Capital's successful restructuring of debt in 2012
empowered it with sufficient operating flexibility. Moreover, the
capital deployment by the company raises our hopes for an
enhancement of investors' confidence.
The company is also capable of providing flexible financing
solutions ranging from a variety of senior debt and uni-tranche
to mezzanine and equity co-investments. Further, American Capital
provides multi-currency funding with underwriting platform
globally, thereby boosting growth of its portfolio companies.
Such benefits provided by the company compel private equity
clients to consider it as an investment partner, which in turn,
helps it diversify.
Though the improved portfolio performance is expected to continue
with the economic recovery, we believe the low interest rate
environment and global cues might act as headwinds in the
Shares of American Capital currently carry a Zacks Rank #2 (Buy).
Among peers, companies in the same industry with a Zacks Rank #1
(Strong Buy) include
Medallion Financial Corp.
ICG Group Inc.
KCAP Financial Inc.
) carries a Zacks Rank #2 (Buy).
AMER CAP LTD (ACAS): Free Stock Analysis
ICG GROUP INC (ICGE): Free Stock Analysis
KCAP FINL INC (KCAP): Free Stock Analysis
MEDALLION FINL (TAXI): Free Stock Analysis
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