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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Dale Baker who wrote (16321)	1/30/2003 1:40:18 PM
From: Dale Baker	Read Replies (1) \| Respond to of 78530

Some details on NFI for those interested: 08:52am EST 30-Jan-03 Flagstone Securities (W.Coleman Bitting) NFI NovaStar`s 4Q02: Another Blowout Quarter - Estimates Up * It is difficult to overstate the power of NovaStar's EPS report. Fourth quarter results highlight both the capacity of the non-prime lending and investing business model to create compelling economic value, and management's deft execution of this model. The worth of these commodities, consistently unappreciated by the market, is becoming increasingly difficult (and expensive) to ignore. * Earnings of $1.62 per share topped our $1.50 estimate by 8%, were up 42% from $1.14 per share in 3Q02, and were up 200% from $0.54 per share in 4Q01. The company also declared a $0.33 per share special dividend related to 2002 earnings, and increased its 2003 EPS guidance to $7.00 - $8.00 per share. * Although NovaStar's investment portfolio continues to generate extraordinary returns, what differentiates 4Q02 from previous quarters is the dramatic growth in the origination franchise. Production volumes surged 65% in 4Q02 to $1.1B from $650M in 3Q02 as the company grew its wholesale account executive staff by 51% and increased its net branch count by 17%. Expecting to double its net branch franchise in 2003, management projects production will grow by around 100% in 2003, to between $4B and $6B, propelling continued growth in the high-ROI mortgage security portfolio. * Net interest income jumped 65% vs. 3Q02, reflecting the fact that all of 4Q02 production was held on balance sheet for the entire quarter, and reflecting a hike in portfolio margin to 13.0% from 10.6%. Net interest margin growth is likely due to higher mortgage security accrual in the increasingly advantageous forward LIBOR environment of 4Q02. With $1B of unsecuritized production on balance sheet, 1H03 gains and high-ROI mortgage security portfolio growth could be dramatic. * 4Q02 results are more impressive still considering that NovaStar had $90M of underinvested cash and liquidity after its 4Q02 mortgage security resecuritization. * GAAP book value, which does not attach any value to NovaStar's origination franchise, increased to $16.62 per share from $15.50 per share in 3Q02. We believe this growth is largely due to mortgage security mark-to-market gains in the increasingly advantageous forward LIBOR environment of 4Q02. * After preliminary review we have increased our 2003 and 2004 estimates to $7.50 and $8.00 from $6.50 and $6.75. At last night's close, NovaStar traded at 4.1X our 2003 estimate, a 24% forward earnings yield. We continue to believe NovaStar offers the highest absolute and risk-adjusted returns of any company in the mortgage finance sector.

To: Dale Baker who wrote (16321)	1/30/2003 2:52:54 PM
From: MCsweet	Respond to of 78530

Dale With respect to doing homework on Mortgage REITs, I meant "you" in the general sense (e.g. "you" could be replaced by "one"). I tried to explain that in my last post, but apparently you didn't get my point. My apologies if you took it personally. I didn't say this was a bad investment, just one in which the investor needs solid understanding of the risks. I personally don't think most investors are qualified to do this. However, I am not saying that you aren't qualified. MC