Anworth Preferred B Shares ANH-B
December 27, 2007 - 11:49am EST by
pman908
2007 2008
Price: 20.60 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 28 P/FCF
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT

Sign up for free guest access to view investment idea with a 45 days delay.

Description

Anworth common shares were written up by john771 in August and have rallied from around $4 to over $8. At the time, Anworth's business consisted of two parts:

 

1. A mortgage REIT with 98% Agency securities and 2% AAA MBS.

 

2. A subsidiary called Belvedere Trust which invested in mainly A and BBB MBS.

 

The key issue was how Anworth would do during the credit crisis when mortgage companies were losing access to repo lines. John771 predicted at the time that Belvedere might lose its ability to repo MBS (even though credit quality was good). But he predicted that Anworth's parent would be okay because it mainly held Agency securities, which were very unlikely to lose their ability to be repoed. The writeup correctly pointed out that there was plenty of upside even if Belvedere was completely written off. This is exactly what happened. As a result of the credit crisis, Belvedere was unable to repo its MBS. But, Anworth's parent was able to continue to repo Agency securities. Belvedere has been largely written off at this point.

 
As of the end of Q3, Anworth had a mortgage portfolio of $4.1 billion (99% Agency), funded by repo lines of $3.7 billion. Common equity was about $340 million. Since the end of the quarter, Anworth has added $66 million of additional equity through an offering of common stock. This equity will be used to buy Agency MBS.

  

The preferred B shares are senior to common stock. They yield 7.6%. Over time, it is likely that they will rally back to near par value of $25. This process has already started. The market has begun to realize the safety of the preferred shares which have rallied by 20% in the last month. As this continues, investors should realize a 20%+ gain as the preferred appreciate to around $25. In the mean time, you can collect the healthy dividend yield. The preferred B shares are completely safe, unless you believe that people will stop repoing Freddie and Fannie securities (a very slim possibility).

Catalyst

None
    sort by    
      Back to top