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Roger Groh of Groh Asset Management (415-352-0678) and Peter Tallas from Friedman, Billings & Ramsey provide the following stock idea on American Capital Strategies (ACAS 23 3/4). Below is the write up.
American Capital Strategies went public late last August and started trading in the $15 area. Their shares dipped to a low of $17 in December and is now trading around $24 per share. American Capital is a buyout and specialty finance company. They provide senior debt, subordinated debt and equity to companies in need of capital for growth, acquisitions, employee buyouts... etc. In short, they will invest $1 million to $20 million in a company that needs money. They do not provide startup financing.
What is interesting about American is that they are a registered investment company and is required to pay out 90% of their income in cash in the form of a dividend. The Chairman, David Gladstone, was CEO of Allied Capital before moving to American Capital and is a very experienced manager with over 20 years experience in the field.
American Capital has already financed $90 million and is ahead of schedule.
Roger Groh of Groh Asset Management views American as an attractive investment because "it is reasonably priced, has terrific management, good yield and it provides good long term appreciation for investors."
Peter Tallas, an analyst at Friedman, Billings & Ramsey notes that he expected American to have financed around $67 million to different companies by June of this year. American Capital has already financed $90 million and is ahead of schedule. Peter estimates that American Capital will earn $1.29 for year ending December 1998 and $1.62 for 1999. It is estimated that American Capital will pay a dividend of $1.22 in 1998 and $1.54 in 1999. Since American Capital is ahead of schedule for making loans, Peter is considering raising estimates.
