Stonegate Capital Partners Updates Coverage on Arlington Investment Corp. (NYSE:AI)

DALLAS, TX / ACCESSWIRE / February 28, 2020 / Arlington Asset Investment Corp. (NYSE:AI)

The full report can be accessed by clicking on the following link: http://stonegateinc.com/reports/AI Q4FY19.pdf

COMPANY DESCRIPTION

Arlington Asset Investment Corp. is an investment firm that focuses on acquiring and holding a levered portfolio of mortgage investments. The Company's mortgage investments generally consist of agency MBS and mortgage credit investments. The Company's agency MBS consist of residential mortgage pass through certificates for which the principal and interest payments are guaranteed by either a government sponsored enterprise (GSE), such as the Federal National Mortgage Association and Federal Home Loan Mortgage Corporation, or a U.S. government agency such as the Government National Mortgage Association. The Company's mortgage credit investments may include investments in mortgage loans secured by either residential or commercial real property or MBS collateralized by such mortgage loans which are referred to as non-agency MBS. The principal and interest of mortgage credit investments are not guaranteed by a GSE or government agency. Arlington Asset Investment Corp. is headquartered in McLean, Virginia, and has elected to be taxed as a REIT for U.S. federal tax purposes for the year ending 12/31/19. Additionally, it is an internally managed company and does not have an external investment advisor.

SUMMARY

Arlington Asset Investment Corp. ("Arlington") is an internally managed investment firm focused on acquiring and holding a levered portfolio of mortgage assets. Using its long-term investment strategy, coupled with its hedging strategy, the Company is focused on maintaining its net interest income spread return and its consistency over an extended period of time. The Company believes this focus should drive a high return on capital for investors. We note the following for Arlington:

It has a flexible investment approach to seek highest risk-adjusted returns
The Company invests in highly liquid assets with substantial interest rate hedges and as of Q419 began investing in mortgage credit investments which could potentially provide higher risk adjusted returns
AI has diversified repo funding sources to enable its RMBS investment strategy
Arlington also has access to longer-term funding sources from its equity and preferred ATMs
As of Q419, its portfolio was substantially hedged at 83%, helping mitigate impacts from rising interest rates
The Company has elected to operate and be taxed as a REIT for US federal tax purposes for the year ending 12/31/19
Reported as of 12/31/19, the Company had $6.5M non-GAAP core operating income with $283 million net capital losses that should help reduce taxable income and therefore its future REIT distribution requirements
Arlington's internally managed structure also better aligns management's interests as compensation is based on the Company and stock performance rather than capital raising and portfolio growth
With AI's election for REIT status, its book value will be equivalent to its tangible book value, which was $7.86per share for both as of 12/31/19

We employ a comparison analysis framework on page 7 of this report for valuation. Using current comps, along with historical valuation ranges, we believe using a P/TBV multiple range of 0.90x to 1.10x is reasonable. Using this range, we arrive at a valuation range of ~$7.07 to ~$8.65 with a mid-point of ~$7.86 for AI. Also, considering current and 3-year historical trading ranges of AI and comps, we believe using a P /E multiple range of 8.0x to 10.0x is reasonable. Using this range on our FY19 EPS estimate, we arrive at a valuation range of ~$6.61 to ~$8.26 with a mid-point of $7.44.

CONTACT:
214-987-4121
Shane Martin, CFA

SOURCE: Stonegate Capital Partners  

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