Use access key #2 to skip to page content.
$18.27 -0.13 (-0.71%)
5/16/2008 4:00 PM

Apollo Investment Corp. (AINV)

CAPS Rating:
*****

The Company is a closed-end, non-diversified management investment company which invest primarily in middle-market companies in the form of mezzanine and senior secured loans, as well as by making direct equity investments in companies.

View All Commentary (AINV)

Recs

12

Avatar seadragons (91.12) Submitted: 1/07/08 5:35 PM : Outperform Start Price: $15.51 AINV Score: 17.35

AINV is on sale, and is a buy.

AINV's business is to invest funds in other companies -- and its balance sheet is full of these investments, which it may "flip" if it wants but which it is also perfectly able to sit back and allow to mature. A graph on the company web site seems to indicate that its investment holdings are largely debt instruments -- a result one would expect from a company focused on "mezzanine and senior secured loans".

But an interesting thing has happened to this double-digit-dividend champion. AINV's premium to net asset value has vanished, and it trades at a DISCOUNT to NAV. Shares is just issued near $20 to roll into deals are now for sale for about $16. How can that be?

In addition to the NAV premium evaporating as folks bail on good companies (the evidence for it at the moment is good, and I'll point to GS, MA, GOOG, AAPL, and ACAS as some off-the-cuff examples of selling without any apparent support in the form of changed corporate fundamentals), NAV has been hammered by peculiarity of accounting standards.

With the market for credit instruments of even big, highly-rated firms being hammered (and the meaning of their ratings being doubted), the market for little companies' debt instruments isn't exactly thriving. AINV isn't able to give a value on its balance sheet based on the present value of expected future returns (the measure by which an investment's worthiness is evaluated) assuming AINV holds it until it does what AINV expects, but instead must list the value AINV could get if it were forced at gunpoint to dump it in the present markets. Consequently, NAV is hammered in AINV even as the price premium plummets into a discount.

So AINV presently offers a double sale on investments: a valuation discount due to the credit/debt markets' recent dislocations, and a NAV discount. AINV isn't being singled out for NAV discount, either: folks running for the hills with their money have left a lowball price on the table for us.

Like the rule commands, buy when others are fearful. AINV is such a play.

For more like this, ACAS is also a suddenly-discounted company with a strong history of effective management.

Report this Post Replies: 4 | Reply

Avatar TMFSinchiruna (98.80) Submitted: 1/18/08 1:04 PM

Recs: 0 | Rec This

Can't agree it's a buy... though I think it may be a hold. I cut my position in half, and will see what happens with the rest. I love the dividend. But as I took a closer look at the companies AINV has invested in, there are just too many in the financial sector, which I feel very sure is headed for far more pain than we've seen to date. There are very few buys out there right now, in my opninion... maybe when the DOW drops another 1,000 we'll have some bargains.

Report this Post Reply

Avatar seadragons (91.12) Submitted: 1/19/08 6:42 PM

Recs: 0 | Rec This

Sinchiruna:

I appreciate the thinking that as a financial, and an owner of debt issued by financials, AINV faces short-term pressure as the sector continues to be hated. However, I have never in my life been able to time a real-world trade, and I am not pretending to do it now. I have shares, sure, but I bought them a while ago.

Just because a firm is a financial, or has made fees from or participates in CDOs, does not mean that there is any actual exposure to subprime default risk, however. In other words, as beaten down and battered as AINV's price has been (and ACAS' too, for that matter), this says nothing about the returns the company will actually realize as it continues to hold and receive returns from its various investments. I note recent insider buying above current prices as an indicator some insider agrees:
http://finance.yahoo.com/q/it?s=AINV

AINV holds lots of subordinate debt (about half its portfolio), and the price of this stuff has been hammered (and hence the NAV), but are the specific investments AINV holds really exposed to default risk? Was AINV's due diligence a failure? I haven't seen the evidence that's the case. If you have it, please post it. While there are financials in AINV's portfolio, I don't have the sense that the companies are exposed to the things that have created the current panic in financials. Like ACAS, I suspect AINV has been tarred wrongly.

I continue to hold both AINV and ACAS on the same investment thesis.

I readily admit I may be too early calling the bottom in this one -- I have never called a bottom right in my life -- but in the long term (and that's the only horizon on which I think the trade is an investment rather than a speculative move) I think the income will continue to be produced over the life of the portfolio, and the NAV discount will evaporate, and so on.

As an aside, internally diversified portfolios like BRK, ACAS, AINV, and so on have been part of a personal diversification program after the 1997-2007 run took AAPL to a crazy fraction of my net. I continue to be an AAPL bull, but I like the protective effect of buying performing income producing investments below their net asset value. Consequently, while I have real doubt about the exact location of a bottom for financials or for any specific stock in a general correction, I believe in (and have voted with my money for) AINV at these prices. (And ACAS. I think BRK's increase has been part of a flight to quality and I don't know what will happen to it as people's confidence returns for the broader market.)

Lemme know if you've got notes on the particular portfolio companies in which AINV is invested. Do you see genuine, specific risks from their particular operations, or just tarring with the rest of the financial sectors?

Thanks in advance!

Report this Post Reply

Avatar wahtash (89.80) Submitted: 3/13/08 10:27 PM

Recs: 0 | Rec This

I'm not sure how to do this as I am new to CAPS. I found your analysis of one of my pix to be educated, enlightened, & erudite, 3 words that I've NEVER used on this site before. Thank you. I, too, like this stock as well as ALD

Report this Post Reply

Avatar RobinLKraus (31.42) Submitted: 3/17/08 3:11 AM

Recs: 0 | Rec This

I could not agree more - bargin soon but right now -- this stock is like a hot girlfriend -- not sure how long you can keep her unless you have deep pockets --wait til she gains a few pounds -

Report this Post Reply

Featured Broker Partners