Calamos Asset Management – An Undervalued Asset
Calamos provides investment management advice and services to institutional and individual investors. The firm offers more than a dozen mutual funds and five closed-end funds, as well as separately managed accounts. Calamos has expanded its fund lineup to include equity, fixed-income, and alternative investments. Calamos Growth and Calamos Growth and Income–account for more than 40% of assets under management.
Both those flagship funds are performing very well this year with the Growth Fund up 39.2% and the Growth & Income Fund up 30.3% YTD through October [versus the DJIA’s + 10.7% and the S&P 500’s +14.7%]. Other Calamos open-end funds have gained above 28% this year and their closed-end funds have shown 52-week shareholder returns of 41.3% {CHY}, 42.2% {CHI}, 33.9% {CHW} and 57.8% {CGO}.
The shares of this fine money management firm were quite popular and highly valued prior to 2008’s market meltdown with typical P/Es in the 21 – 22x neighborhood. Earnings took a big hit last year but are recovering nicely as assets under management are rebounding.
Here are their per share numbers from continuing operations as reported by Value Line:
| Year | Sales | C/F | EPS | Div. | B/V | Av. P/E | 52-wk Range |
| 2004 | 13.57 | 4.67 | 1.09 | 0.07 | 6.89 | 22.6x | 19.40-28.35 |
| 2005 | 18.16 | 1.48 | 1.26 | 0.30 | 8.09 | 21.1x | 20.55-32.81 |
| 2006 | 20.95 | 1.78 | 1.45 | 0.38 | 9.26 | 21.6x | 24.23-44.10 |
| 2007 | 22.68 | 1.76 | 1.22 | 0.44 | 10.24 | 21.5x | 20.08-34.61 |
| 2008 | 20.08 | 0.62 | d.1.24 | 0.33 | 7.73 | NMF | 2.55-29.67 |
In the nine months ended September 30th EPS were $0.39 versus a deficit in 2008. Full year consensus 2009 – 2010 expectations now run $0.60 and $0.82 /share respectively.
That makes the forward P/E< 13x – well under the historical range since the 2004 IPO.
If the fine fund performances remain strong, I wouldn’t be surprised to see AUM increase dramatically and for estimates to get ratcheted up further. Note the high prices from each of the years 2004 – 2008 for the upside potential over the longer term.
At last week’s close of $10.60 these shares are trading at just over 1.3x the September 30th book value. CLMS has traded at 3 – 4x book value during each of the previous five years. Even twice book value would bring CLMS shares back to over $16 for a 50% move from the current quote.
The dividend yield of 2.075% is better than you can get on your money market or most bank CDs right now.
Morningstar takes a conservative view with a ‘fair value’ estimate of $12 /share. I’m much more bullish than they are but even their target would bring a 13.2% gain on top of the dividend for a > 15% one-year total return. Calamos shares actually closed at $14.83 on July 23rd and at $14.14 as recently as October 15th.
I was a big buyer of these shares last fall when they were ridiculously cheap. I lightened up when the shares hit $15 and now I’m buying again expecting at least $15 - $16 over the next 12 months.
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Calamos has options but they are quite thinly traded with wide bid-ask spreads.
Here is a nice trade that should be available with limit orders…
| Cash Outlay | Cash Inflow | |
| Buy 1000 CLMS @ $10.60 /share | $10,600 | |
| Sell 10 May $12.50 calls @ $1.20 /sh. | $1,200 | |
| Sell 10 May $12.50 puts @ $3.00 /sh. | $3,000 | |
| Net Cash Out-of-Pocket | $6,400 |
If Calamos shares bounce back to at least $12.50 (+ 18%) by May 21, 2010:
· The $12.50 calls will be exercised.
· You will sell your shares for $12,500.
· The $12.50 puts will expire worthless.
· You will likely have collected $165 in dividends.
· You will have no further option obligations.
· You will end up with no shares and $12,665 in cash.
That best-case scenario would show a total profit of $6,265/$6,400 = 97.8%
achieved in just over 6.5 months on shares that only needed to rise by 18% or more.
What’s the downside?
If Calamos shares are< $12.50 on May 21, 2010:
· The $12.50 calls will expire worthless.
· The $12.50 puts will be exercised.
· You will be forced to buy another 1000 CLMS shares.
· You will need to lay out an additional $12,500 in cash.
· You will likely have received $165 in dividends.
· You will have no further option obligations.
· You will end up with 2000 shares and $165 in cash.
What’s the break-even point on the whole trade?
On the first 1000 shares it’s their $10.60 purchase price less
the $1.20 /share call premium = $9.40 /share.
On the ‘put’ shares it’s the $12.50 strike price less the
$3.00 /share put premium = $9.50 /share.
Your overall break-even would be $9.45 /share (ignoring yield)
or $9.37 /share (including the expected dividends).
CLMS could fall by up to $1.23 /share (-11.6%) without causing
a loss on this trade.
Disclosure: Author is long CLMS shares and short CLMS options.
Hi Paul,
I have been following you for a while and find your articles on seekingalpha to be quite useful. I am though new to options and needed some information if possible. From your above example, does the $6400 ( net cash out of pocket ) cover the 20% requirement for selling the 10 May 12.50 put or do you need to put an extra 20% ( of $12,500 ) for that. Any response would be greatly appreciated.
Thank you
anurag,
The maintenance margin requirement would consist of two parts.
1) 30% of the the net purchase ($10,600 less the $1200 call premium)
That’s 30% of $9,400 or $2,820.
2) 20% of the net exercise price ($12,500 less the $3,000 put premium)
That’s 20% of $9,500 or $1,900.
The total of $4,750 could be met with cash, t-bills, or any other paid-up marginable secruities already held in your margin-approved account.
The $6,400 cash out-of-pocket would be needed to avoid paying any margin interest.
Calamos Asset Q4 profit beats estimates, ups dividend
Calamos Asset Management, Inc.
* Q4 EPS $0.23 vs est $0.20
* Revenue rose 21.5 pct
* Avg assets under management rose 25 pct
* Ups dividend by 36 pct
Jan 26 (Reuters) - U.S. money manager Calamos Asset Management Inc (CLMS.O) posted quarterly profit above market expectations, helped by a 25 percent rise in assets under management, and raised its quarterly dividend by 36 percent.
Fourth-quarter net income was $4.7 million, or 23 cents a share, compared with net loss of $26.1 million, or $1.34 a share, in the year-ago period.
Analysts on average had expected the company to post earnings of 20 cents a share, according to Thomson Reuters I/B/E/S.
Revenue for the quarter was up 21 percent at $81.3 million.
The year-over-year variance in revenue was driven mostly by a 25 percent increase in average assets under management, Calamos said in a statement.
Average assets under management as on Dec. 30, a key driver of revenue and profit in fund management companies, were $31.6 billion, compared with $25.3 billion, last year.
The company said it raised its quarterly dividend by 2 cents to 7.5 cents per share, payable Feb. 24 to shareholders of record Feb. 9.