American Capital Ltd.
) reported second quarter 2012 operating income of 58 cents per
share, topping the Zacks Consensus Estimate of 21 cents. The
results more than doubled from the prior-year quarter's earnings of
20 cents per share.
The favorable outcome was attributed to top-line growth, followed
by decreased operating expenses reflecting better expense
management. Moreover, new investments and reduction of debt acted
as positives. An increase in non-accrual loans was a negative for
Net operating income for the quarter was $194 million,
significantly up from $71 million in the prior-year quarter. Net
earnings for the quarter were $237 million, or 71 cents per share
compared with $410 million or $1.13 per share in the prior-year
Performance in Detail
Total operating income was $163 million in the quarter, up 15% from
$142 million in the prior-year quarter, due to higher interest and
dividend income. Additionally, operating income also surpassed the
Zacks Consensus Estimate of $141 million.
Total interest and dividend income for the quarter was $151
million, up 15% from $131 million in the prior-year quarter. The
weighted average effective interest rate on the company's private
finance debt investments as of June 30, 2012, was 11%, declining 10
basis points from the end of the previous quarter. Fee income also
climbed 9% year over year to $12 million.
Operating expenses declined 7% year over year to $66 million. The
fall in expenses was attributable to significant declines in
interest expenses and reduced salaries, benefits and stock-based
As of June 30, 2012, non-accrual loans were $243 million,
representing 12.3% of total loans at fair value, up from $178
million of non-accrual loans, indicating 8.1% of total loans at
fair value, as of March 31, 2012.
Net asset value (NAV) per share came in at $16.62 in the quarter,
up 6% or 91 cents per share sequentially. In spite of the volatile
capital markets affecting valuations of 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 also expects to post an
enhancement in book value.
AMER CAP LTD (ACAS): Free Stock Analysis Report
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American Capital's asset coverage ratio improved substantially to
661% from 552% in the prior quarter. The company repaid securitized
debt of $191 million and increased investments by $103 million
while strengthening its balance sheet.
Share Repurchase and Dividend Update
During the second quarter of 2012, American Capital repurchased 9.1
million shares worth $85 million, at an average price of $9.34 per
share. Since the beginning of the new repurchase program adopted
last year, the company repurchased 32.2 million shares of common
stock for $267 million at an average price of $8.30 per share.
Developments During the Quarter
In June 2012, Fitch Ratings lifted its outlook on American Capital
to 'Positive' from 'Stable' as part of its review of six Business
Development Companies (BDCs). The rating agency was impressed with
American Capital's steady earnings performance.
American Capital's successful restructuring of debt empowered it
with sufficient operating flexibility. Capital deployment by the
company raises our hopes for an enhanced investor confidence and
the outlook rating upgrade by Fitch added fuel to the fire.
Moreover, the company has the capability to provide flexible
financing solutions ranging from a variety of senior debt and
uni-tranche to mezzanine and equity co-investments. American
Capital provides multi-currency funding with underwriting platform
globally, thereby boosting growth of its portfolio companies. Such
benefits provided by the company urge private equity clients to
consider it as an investment partner, which in turn, helps the
Though the improved portfolio performance is expected to continue
with the economic recovery, we believe the low interest rate
environment and global cues may act as headwinds in the coming
Shares of American Capital currently retain a Zacks #3 Rank, which
translates into a short-term (1−3 months) Hold rating. Considering
the fundamentals, we also maintain a Neutral recommendation on the
Among American Capital's peers,
Apollo Investment Corporation
) will be releasing its fiscal first quarter 2013 results on August