SAR reported for their 3rd Qtr. ending Nov. 2012 a NII (Net Investment Income) of $.63/sh , a debt to equity ratio of about 18%, and a NAV of $21.75/sh (Total-$102.9 M). For December they made an additional $29 M of net loans to their portfolio companies and increased their debt/equity ratio to about 45%. They can borrow $30 M +/- more from SBA without putting in more capital and are seeing attractive investment opportunities and improving credit quality. About 20% of their assets are in a CDO that is performing fine. Yahoo reports inside ownership of 42%.
The company is little covered by analysts. The only analyst estimate I could find showed $1.90/sh for its year ending Feb 2013. At current prices, this would equate to a Price/NII of 8.2 ($15.50/$1.90). Annualizing its 3rd qtr NII, it has a a Price/NII ratio of 6.2 ($15.50/$2.52). What is a good estimate of its future NII? I am uncertain as their portfolio is in transformation and I found their financial statements somewhat confusing; particularly their management incentive fees that vary substantially from negative to positive. However, as conditions seem to be improving, I am speculating a NII of $2.00+/sh might be reasonable for the upcoming year. If so, it seems to be on sale at a bargain price.
Negative features include it is fairly illiquid due to its small size and the company is not paying a regular dividend. Management is trying to grow its asset base and is apparently only declaring the minimum amount of dividends they need to avoid corp. taxation and only giving any needed dividends once a year. Their dividend for 2012, however, was quite substantial at $4.25/sh (20% cash, 80% stock). A stock offering below book value to bring in extra equity is always possible, but management seems to be sensitive to this. Anybody see anything important I am missing?
They can only issue stock at 85% of NAV, so any offering would have to be above about $17 given the current NAV. I don't see it happening. Their failure to issue all cash dividends is really hurting them. I don't think anybody likes the sort of private letter IRS ruling game they are playing.