By:
Adam Hamilton, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• Assured Guaranty (NYSE:AGO) provides financial guaranty insurance
products to provide credit protection to debt holders from defaulting.
• This year, AGO posted
the highest annual amount of present value business production (PVP) since 2011
• In the U.S. municipal
bond insurance market, AGO provided more transactions and par insurance than the
rest of the industry combined.
• A new focus strategy of
acquiring legacy bond portfolios made tremendous progress this year. AGO
acquired CIFG NA in July 2016 and MBIA UK in January 2017
• In FY16, AGO produced a
46% annual return which exceeded the S&P 500 Financials index of 23%. Its
share price surpassed $40 this year for the first time in company history.
Key
points: Present value business production equated to $214
million at the end of FY16, the highest in 5 years and up 20% from FY15. This
is due to significant contributions from each of AGO’s core business. U.S. Public
finance contributed $27 million of PVP with international transactions. Structured
finance contributed $28 million of PVP, provided by the company’s first ever
balloon note guaranty.
AGO made big moves this
year, focusing on large transactions. The public-private partnership (PPP) deal
to help finance the redevelopment of New York’s LaGuardia Airport was a
milestone. This is the biggest PPP in the history of the Port Authority of New
York and New Jersey. In this PPP, AGO guaranteed $412 million of par in the
primary market and $180 million in the secondary market. This is huge,
considering President Trumps call of large-scale spending on infrastructure
development.
In terms of inorganic
growth, AGO continues to make long strides. The acquisition of CIFG NA $320
million in operating income. According to management, these acquisitions are
expected to grow earnings and book value per share in 2017. This solidifies
AGO’s plan to finance international infrastructure as well as domestic is in
full effect.
What
has the stock done lately?
Over the past 6 months,
AGO’s stock has had a price range between $29-$43. The stock was on an upward
trend but saw a slight dip three months ago. However, since releasing earnings,
AGO has seen upward movement as price continues to rise. The stock’s intrinsic
value continues to grow and if AGO continues on this path, it should continue
to be on an upswing over the next year.
Past
Year Performance: AGO has executed its business strategies
to their true potential. The company was the only monoline this past year to
maintain an active presence in its three core areas of international
infrastructure finance, structured finance, and U.S. public finance. They continue
to manage their capital efficiently particularly using it to make acquisitions.
They continue to increase shareholder value, with an 8% increase in quarterly
dividend, and 40% YOY growth in annual operating income per share. The
company’s strategies are geared to perform and produce financial strength in
the long term.
Source:
FactSet
My
Takeaway
AGO was pitched in 2012
with a price target of $20.00 and 38% upside. The stock is now currently
trading at $38.85 and its outlook shows numerous room for improvement. As
interest rates rise, the demand for municipal bond insurance will increase as
well, which will drive AGO’s growth. Subsequently, I recommend that the AIM
international portfolio hold on to Assured Guaranty as of May 2017.
Source:
FactSet
