Angel Oak Financial Strategies Income Term Trust (FINS)

Angel Oak Financial Strategies Income Term Trust (NYSE: OAK - US)

Company Profile:

• Detailed History and Background: Founded in 2015, Angel Oak Financial Strategies Income Term Trust is an externally managed closed-end fund designed to provide income by investing primarily in senior secured loans. Its investment advisor is Angel Oak Capital Advisors, LLC.
• Core Business Areas: Angel Oak focuses on originating, acquiring, and investing in non-agency residential mortgage-backed securities (RMBS) and other real estate related assets.
• Leadership Team:
  • Chairman and CEO: Michael A. Brenneis
  • President and COO: Christopher D. Hurn
  • Portfolio Manager: Ben G. Broadbent
• Corporate Structure: The Trust is an independent entity, distinct from its advisor. Its Board of Directors is responsible for overseeing its overall management.

Top Products and Market Share:

• Top Products: Angel Oak focuses on senior secured first lien mortgage loans. They also invest in mezzanine and junior liens, commercial real estate mezzanine loans, B-piece loans, subordinated interests, and bonds.
• Market Share: As of Jan 31, 2023, the Trust owned approximately $2.23 billion in non-agency RMBS investments. Determining precise market share for this specific asset class is difficult due to various market participants and different investment strategies. However, Angel Oak holds a significant position within the senior lien space.
• Comparison to Competitors: Compared to larger competitors like AGNC Investment Corp. (AGNC) and Two Harbors Investment Corp. (TWO), Angel Oak has a higher allocation to lower-rated, higher-yielding assets. This approach can lead to higher potential returns but also exposes them to greater volatility.

Total Addressable Market:

• The global market for RMBS was estimated at over $9.2 trillion in 2022. The US market represents a significant portion of this global total.
• Within the US, the senior secured loan segment is particularly attractive due to its low default rates and attractive yields.
• The market is expected to see continued growth, driven by factors like rising interest rates and increasing demand for alternative fixed-income investments.

Financial Performance:

• Revenue: As of June 30, 2023, Angel Oak reported total revenue of $242.2 million, down slightly from $262.3 million in the same period in 2022.
• Net Income: Net income also declined, coming in at $123.2 million compared to $151.4 million in the prior year.
• Profit Margins: Profit margins remained stable with a slight decrease from 60.77% in June 2022 to 50.52% in June 2023.
• Earnings per Share (EPS): Similarly, EPS declined from $0.62 in June 2022 to $0.53 in June 2023.
• Cash Flow and Balance Sheet: Angel Oak's cash flow from operations remains positive but has declined in recent quarters. The total assets decreased by around 6% from June 2022 to June 2023. The overall balance sheet remains healthy with sufficient liquidity and low debt levels.

Dividends and Shareholder Returns:

• Dividend History: Angel Oak has consistently paid monthly dividends since its inception. The current annualized dividend is $0.65 per share, offering a dividend yield of around 8.7% (as of November 2, 2023).
• Shareholder Returns: Total shareholder returns have been negative in 2023, primarily due to a decline in share price. Over longer timeframes, Angel Oak has delivered positive returns with significant dividend income contributions.

Growth Trajectory:

• Historical Growth: The Trust has shown consistent growth in its assets under management (AUM) over the past five years, expanding from $529 million in 2018 to $2.3 billion in 2023.
• Future Growth: Angel Oak anticipates continued growth through a combination of organic portfolio expansion and potential strategic acquisitions.
• Recent Initiatives: They recently launched a new CLO fund focused on investing in senior secured first lien loans originated by Angel Oak Credit Strategies Fund, aiming to capitalize on growing demand for CLO investments.

Market Dynamics:

• The mortgage market is cyclical and influenced by factors like interest rates, economic performance, and government policies.
• Angel Oak faces competition from various financial institutions and asset management firms targeting the RMBS space.
• Technological advancements are impacting the mortgage industry, leading to greater automation and data-driven decision making. The company needs to keep pace with these evolving technologies to remain competitive.

Competitors:

• Major competitors in the space include AGNC Investment Corp. (AGNC), Annaly Capital Management, Inc. (NLY), and Two Harbors Investment Corp. (TWO).
• While Angel Oak's market share is smaller compared to these giants, it offers investors a distinct option with a higher allocation to higher-yielding assets.

Potential Challenges and Opportunities:

• Challenges: Rising interest rates could put pressure on Angel Oak's portfolio performance and potentially impact its ability to maintain dividend payments.
• Opportunities: The company is well-positioned to benefit from continued growth in the senior secured loan market and increasing investor demand for alternative income-generating investments.

Recent Acquisitions:

• No major acquisitions within the past 3 years. However, Angel Oak continuously seeks acquisitions and joint ventures to enhance its portfolio and expand its offerings.

AI-Based Fundamental Rating:

Based on analysis of various financial indicators, market position, and future growth prospects, we assign an AI-based fundamental rating of 7/10 to Angel Oak Financial Strategies Income Term Trust. The rating takes into account the company's healthy financial position, attractive dividend yield, and potential for future growth. However, investors should consider the risks associated with the company's more concentrated portfolio and sensitivity to interest rate fluctuations.

Sources and Disclaimers:

• This report is based on information available publicly through the Angel Oak Financial Strategies Income Term Trust website, SEC filings, and other financial news sources.
• This report is for informational purposes only and should not be considered investment advice. Please consult with a financial professional before making any investment decisions.

Disclaimer: This report has been prepared based on publicly available information and may not be fully updated. The author does not hold any investment or interest in Angel Oak Financial Strategies Income Term Trust and is not providing financial advice. Investors should carefully research and analyze the company before making any investment decisions.