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Novastar Financial, Inc (NFI)

AM (annual meet...

AM (annual meeting) comments

mhatmccane

409 posts

Joined
1/20/2006

AM (annual meeting) comments
Posted: 06 May 06 1:03 PM

AM Comments
by:

macroboyd (60/M/Wexford, PA)
Long-Term Sentiment: Strong Buy

05/06/06 11:56 am
Msg: 429230 of 429277

Once again, Scot Hartman and crew have shown their penchant for cool headedness and very smart management. As they saw the interest rates continuing to rise, they hedged, and were so successful with their hedging that they earned "too much" from the hedges requiring some adjustments in how they report to insure that they continue to meet REIT status requirements. The net result will be a reduction in GAAP earnings for the next few quarters. It is taxable earnings, however, that bring home the bacon, and we see that TI for the first quarter is $1.95 remaining well ahead of the $1.40 dividend.which will be paid out in dividends. This current $1.95 will be "carried over" to be paid in the future as the current dividend is being paid out of 2005 carry over. In short we are simply seeing NFI add to the total TI carry over. Now, the fun part is that after paying the current dividend there is still a total of $155 million in TI carried over from 2005 which by law must be paid out to the stockholders by November of 2006. This means that NFI will be distributing these funds to the shareholders as a special. At the meeting Lance said that he expects a certain amount of consolidation in the sub-prime market as smaller and less successful MREITS bow out, he said that this bodes well for NFI in 2 ways. First, the weighted average coupon will continue to go up as the desperate players fall by the wayside; and secondly there will be fewer players to divide up the pie leaving more opportunity for NFI. He seemed comfortable in saying that production will be fairly strong in 2006.
As far as them changing the dividend from the current distribution timetable to monthly which was requested in earnest by several folks at the meeting, representing 2% and 6% of the outstanding stock respectively, it doesn't appear that this will happen as it would increase costs and it doesn't appear that they will do that, although Hartman said that the board would re-look at it. From my standpoint I am just as happy to see NFI hold/use the money as long as they can, as they are very successful in making it grow. It seems to me that if you want a monthly paycheck you can simply write yourself one out of your account and distribute the quarterly payments to yourself on a monthly basis. I agree that it would take some of the swing trading out of play and it would be more diffiult for the shorts, but Hartman is more interested in utilization of the funds and does not seem worried about the price of the stock. I thought that Scot and Lance's comments regarding cost reduction were very telling. While they wouldn't put a figure on it, they were pleased that they were able to cut origination costs in 2005 and the 1st quarter of 2006, but they were clearly not satisfied that they have done as much as possible and they were firm in their statements that they felt that further cost reductions would be forthcoming. Privately, I tried to get Scot to tell me if there were any possibilities of mergers or acquisitions in the future, or if NFI was being targeted by any other players, but he, appropriately and gently, reminded me that even if there were he wouldn't be able to tell me, and if there weren't he wouldn't be able to comment on that either. All in all, they continue to manage the business in a professional and very straight forward manner with as much transparency as possible given the complexity of the business. I remain 100% confident in NFI management, I believe that the business will continue to grow and perform, and that 2006 will not disappoint. Finally, Lance made a few comments about the housing market and it is apparent that they are not overly worried about a housing "bubble" or that the regional declines that we are now witnessing will have a material impact on NFI. They did not speculate about interest rates, but when rates level off, and more so if they begin to decline again, there is not doubt in my mind that NFI will be the place to

zockster

1 posts

Joined
1/10/2006

Re: AM (annual meeting) comments
Posted: 06 May 06 1:57 PM

A stupid ? ... for us non-math majors .... but how much does that $155 million in TI carryover, to be paid by November, equate to .. per share?

Paid as a special div ....IN ADDITION to the regular quarterly divs of $1.40 ?

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Specific Stocks

Novastar Financial, Inc (NFI)

AM (annual meet...