Lingering Effects Of Bankruptcy Makes Valuing Ambac Financial Shares Difficult

Shares of Ambac Financial Group, Inc. AMBC plunged more than 17 percent after MKM Partners downgraded the stock to Sell from Neutral, citing difficulties in valuing the company.

“While the parent company came out of Chapter 11, its operating company remained in rehabilitation and accordingly there was no way for capital to leave the operating company to the parent, except for a small amount related to a tax tolling agreement,” analyst Harry Fong wrote in a note.

Recently, Ambac's Wisconsin regulator said, "[A]t the present time, absent further actions, AAC has insufficient capital to demonstrate that a “durable” exit can be achieved to the satisfaction of the Rehabilitator."

Analyst's Commentary, Price Target

Fong set a price target of $10 versus a fair value target of $27.

Fong said he continues to have “great difficulties” assessing an appropriate value for the company. Its trailing adjusted book value (ABV) is $32.12. The analyst said he valuing Ambac at a 70 percent discount to its trailing ABV or $10.

“For comparison, Syncora that recently came out of rehabilitation trades at about a 77 percent discount to its trailing adjusted book value. Valuing Ambac at a 77 percent discount to ABV yields a price of about $7.50,” Fong added.

At last check, shares of Ambac plunged 16 percent to $21.84.