- The Washington Times - Monday, March 6, 2006

Allied Capital Corp., a D.C. public investment firm, reported that year-end net income more than tripled to $872.8 million ($6.36 per share) but net investment income, a stronger measure of performance, fell 35 percent to $137.2 million.

Last year, the company had huge gains in net investment income, making for a high threshold. Allied cautioned that net income can vary substantially from year to year, depending on how much buying or selling the company does during the year.

In a conference call with investors yesterday, the company’s management team said it was one of the company’s strongest years.

“[Last year] was a record year for Allied Capital,” Chairman and Chief Executive Officer William Walton said.

In the fourth quarter, net income surged to $328.1 million ($2.36 per share) from $47.8 million (35 cents) a year earlier. Net investment income, or the measure of money coming in from investments after expenses, fell 32 percent to $37.1 million (27 cents) from $54.7 million (40 cents) a year ago.

Analysts say the measures are positive.

“They had good gains on sales, which indicates good investment decisions … their credit quality remains strong and their dividends are steady; all factors seem to indicate their life is OK,” said Craig Maurer, an analyst with Soleil Securities in New York.

Neither Mr. Maurer nor Soleil owns stock in the company.

The company’s earnings did not have a large effect on the company’s stock price. It fell 50 cents yesterday to close at $30.18 on the New York Stock Exchange. The stock has been trading between $28 and $30 for the past six months.

But Allied’s stock did get a boost of $1.40 Friday to close at $30.68, the day after it announced it plans to sell its majority stake in Advantage Sales & Marketing LLC, an Irvine, Calif., sales and marketing company, to an affiliate of J.W. Childs Associates and Merrill Lynch Global Private Equity.

Allied expects to make $415 million on the sale.

The deal was big enough to raise the company’s rating from market perform to outperform at Piper Jaffray & Co., a Chicago investment firm.

“Allied Capital Corp. has easily proven to be the best ‘investor’ among the publicly traded business development companies to date,” senior research analyst Robert P. Napoli said in a research note.

Piper Jaffray has a business relationship with Allied.

Others say it was just one great deal that doesn’t necessarily represent the company’s whole portfolio.

“It’s a credit to them that they were able to recognize how to get the most out this particular relationship … it’s not a barometer of their entire portfolio,” Mr. Maurer said. “If I’m an investor, I wouldn’t take it as an indication that the entire portfolio would gain like that.”

Allied says the sale represents the value it’s trying to pour into all of its companies.

“The value creation we are seeing in our buyout investing activity was demonstrated in last week’s announcement of the definitive agreement to sell the majority interest of Advantage Sales & Marketing,” said Managing Director John Shulman.

“We are getting more efficient at working with the companies in our profiles to build value and the Advantage exchange is a textbook example of that,” Mr. Walton said.

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