On Thursday, American Capital Ltd. announced that it has repurchased its common stock worth $103.0 million during the fourth quarter of 2012. The company bought back a total of 8.8 million shares of its common stock at an average price of $11.72 per share. The number of shares repurchased represents 2.8% of the company's outstanding shares of common stock as of Sep 30, 2012.
Since the third quarter of 2011, American Capital has repurchased 52.4 million shares of its common stock for $495.3 million with an average purchase price of $9.46 per share. This represented 15.2% of the company's outstanding shares as of Jun 30, 2011.
As of Sep 30, 2012, share repurchases improved the company's net asset value per share by 90 cents. However, the absence of this share buyback activity would have made it necessary for American Capital to earn an additional $278 million over the last five quarters, to record the current level of NAV per share.
Based on a number of factors, the company adopted a new program in September 2011. In accordance with the plan, American Capital keeps aside certain amount either for stock repurchases or dividend payments, on a quarterly basis. The quarterly amount depends on the company’s cumulative net cash from operating activities in the prior quarters, cash and cash equivalents in hand, cumulative repurchases or dividends, debt position, investment plans as well as operational issues. Moreover, the current trading price of the company’s common stock, its financial liquidity and the ongoing economic conditions are taken into consideration.
As per the company’s plan, if the price of its common stock trade at a discount to the NAV, it will opt for share repurchase. However, in case the price trade at a premium, the company will decide on dividend payments.
The authorization of the new share buyback program and resumption of dividend payments raise our hopes for an enhanced investors’ confidence in the company. During the last quarter, American Capital’s asset coverage ratio improved substantially to 769% from 661% in the prior quarter. The company also repaid securitized debt of $150 million and increased investments by $6 million, while strengthening its balance sheet.
American Capital currently retains its Zacks #2 rank, which translates into a short-term Buy rating. However, in the same sector, KCAP Financial, Inc. (KCAP - Snapshot Report) retains a Zacks #1 Rank (Strong Buy).