American Capital Ltd.
) reported first-quarter 2013 operating income of 14 cents per
share, lagging the Zacks Consensus Estimate by 14 cents.
Moreover, the results compared unfavorably with the prior
quarter's earnings of 26 cents per share.
Lower-than-expected results were attributable to lower top-line,
followed by a rise in non-accrual loans. Further, the low
interest environment during the quarter was a negative. However,
new investments and reduction of debt acted as positives.
Net operating income for the quarter came in at $46 million, down
from $83 million reported in the prior quarter. Net earnings were
reported at $346 million, or $1.09 per share, against $123
million or 38 cents per share in the prior quarter.
Performance in Detail
Total operating revenue was $133 million in the quarter, down 26%
from $180 million in the prior quarter, due to lower interest and
dividend income and reduced fee income. Additionally, operating
revenue was below the Zacks Consensus Estimate of $149 million.
In the quarter under review, total interest and dividend income
was $122 million, down 22% from $157 million in the prior
quarter. The weighted average effective interest rate on the
company's debt investments as of Mar 31, 2013, was 10.6%,
decreasing 80 basis points from the end of the prior quarter.
Moreover, fee income plummeted 52% on a sequential basis to $11
Operating expenses remained stable at $65 million. The decline in
interest expenses was offset by elevated salaries, benefits
and stock-based compensation.
As of Mar 31, 2013, non-accrual loans were $208 million,
representing 11.3% of total loans at fair value, up from $177
million of non-accrual loans, indicating 9.0% of total loans at
fair value, as of Dec 31, 2012. The increase in non-accrual loans
were driven by new non-accruing loans due to weak performance by
Net asset value (NAV) per share came in at $19.04 in the quarter,
up 7.0% or $1.20 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 also expects to post an
enhanced book value.
American Capital's asset coverage ratio improved substantially to
956% from 801% in the prior quarter. The company repaid
securitized debt of $113 million in the quarter under review and
increased investments by $98 million while strengthening its
balance sheet. Moreover, the company recorded $281 million of
cash proceeds from realizations of portfolio investments during
Share Repurchase Update
During first-quarter 2013, American Capital repurchased 9 million
shares worth $128 million, at an average price of $14.23 per
share. Since the beginning of the new repurchase program, adopted
in Sep 2011, the company repurchased 61.4 million shares of
common stock for $624 million at an average price of $10.16 per
American Capital's successful restructuring of debt empowered it
with sufficient operating flexibility. Moreover, the capital
deployment by the company raises our hopes for an enhancement of
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 #1
(Strong Buy). Among other companies in the same sector that are
worth considering include
KCAP Financial Inc.
) with a Zacks Rank #1, along with
Medallion Financial Corp.
Gladstone Investment Corporation
) with a Zacks Rank #2 (Buy).
AMER CAP LTD (ACAS): Free Stock Analysis
GLADSTONE INVES (GAIN): Free Stock Analysis
KCAP FINL INC (KCAP): Free Stock Analysis
MEDALLION FINL (TAXI): Free Stock Analysis
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