A comparable-company analysis also finds the valuation placed on the asset manager to be reasonable. T. Rowe Price Group, Inc. (NASDAQ:TROW) manages some $86.8 billion in assets under management, earning an enterprise value of $15 billion from Wall Street. Thus, it trades at an EV/AUM ratio of 0.17. American Capital Asset Management, which requires very little capital from its owner, is valued at an EV/AUM ratio of 0.064.
The Foolish bottom line
As a standalone investment company, American Capital Asset Management, which is worth roughly 19% of all assets in the American Capital Ltd. (NASDAQ:ACAS) portfolio, is a very valuable asset manager. Not only does it require minimal investments, but its earnings power is also cemented with management agreements that allow for consistent fee income, even if its funds deteriorate in value. If its mortgage REITs eventually trade above book value, it could raise new funds and grow fee-earning assets, providing additional upside.
This could be a subsidiary to watch if American Capital Ltd. (NASDAQ:ACAS) follows through with plans to spin off its debt and equity assets into new publicly traded companies. As a pure play, it would be a very attractive investment company that could potentially pay out big dividends to shareholders.
American Capital Ltd. (NASDAQ:ACAS) recently filed with the SEC for a new business development company named “AC Debt,” which could be the vehicle through which American Capital separates its debt portfolio from its equity investments including American Capital Asset Management. If given the opportunity to own the asset manager by itself, I’d be a buyer at the IPO.
The article This Stock Makes a Killing With Other People’s Money originally appeared on Fool.com.
Fool contributor Jordan Wathen and The Motley Fool have no position in any of the stocks mentioned.
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