I agree with you that the SA article of 5-17-16 on NEWT is cautiously optimistic. I don't think the author quite understands just how different NEWT is from all other BDC's. The conversion of Newtek from a C-Corp Holding company to a BDC was a brilliant move by management. It created a unique BDC like no other. And when the investing community realizes what NEWT is all about, they will want to own it.
Also, we all look for catalysts that might drive a stock price higher in the near term and NEWT has more than one of those. That first catalyst is the expected increase in the quarterly dividend. That announcement could come in a few days. And the street loves dividend increases especially in these trying times for BDC's.
Additionally, NEWT has signed letters of intent to acquire two other companies, one in the loan services business and one in technology, and is in negotiation to buy two others. Announcements on the finalization of any of these acquisitions will further solidify the aggressive posture of NEWT management and its commitment to growth.
Wunderlich Securities came out with a report on CPTA on Friday which was especially interesting because it makes the effort to quantify the end result of CPTA exiting certain of its portfolio non-accruing holdings while at the same time monetizing other portfolio investments. In other words, the analyst suggests a timeframe and outcome of the portfolio restructuring and further projects the monetization of $30 million of non-income producing equity investments, all of which could get done this year. The monetization effort could improve NII by $0.23 per share on an annualized basis as that non-income producing equity is turned into income producing loans.
The result of all of this is that CPTA will be able to discontinue waiving incentive fees starting with the 4th quarter of this year. The analyst NII estimates for the three up-coming quarters are $.47, $.47, and $.51 with full 2016 coming in at $1.92 versus $1.66 in 2015. Note the 4th quarter of $.51 will be earned without fee waivers and will exceed the quarterly dividend by $.04, which is a very positive turn of events.
Also the realized losses that will be incurred with the exit of certain non-paying loans will most likely not affect the bottom line because those realized losses will be off-set by unrealized gains as the current unrealized losses on these investments will be reversed. In fact, the analyst has NAV going up by year end to $16.32 from the current $16.29.
We don't know if things will happen as the analyst projects, but the whole scenario is intriguing because it projects a turnaround for CPTA and in a relative short time frame.
The Wunderlich rating is "Buy" and the target price is $15.50, down from $16.50.
We should also remember that CPTA is paying an attractive and secure $1.88 per share annual dividend and even at the target price of $15.50, the dividend yield is an eye-catching 12.13%. At the same time the price to book at $15.50 remains below "1x".
Yes, did listen to the CC. They are continuing to clean up their portfolio of non-accruals (currently 4 of them, down from 5) and they are shrinking their energy holdings. Energy holdings were reduced to 6.3% of the portfolio from 9% on a cost basis. Non-energy investments actually appreciated by about $5 million in Q1. Both realized losses and unrealized losses were down from the previous quarter so they are getting the job done.
As you know, CPTA pays one of the highest dividends in the industry and once again covered the $.47 quarterly dividend (paid monthly) with NII (Net Investment Income) even though they had to waive a bit of the incentive fee (about 4 cents per share) to get the dividend covered. Street projections for NII continue to suggest that NII will cover the dividend going forward, so the current dividend looks to be safe.
Also, they have some significant capital gains in the portfolio which can generate some nice profits as well as supply dollars for future interest paying investments. For example, they have three portfolio companies that could EACH generate an approximate $10 million gain if monetized at the current fair value. On the CC, management said they expect to monetize several equity investments this year.
So things are okay at CPTA as management gets closer to getting NII coverage of the dividend. As the CFO put it: "net investment income and the coverage of distributions remain our highest priority."
Looking at potential total return, with the current price of $13.41, the gain to the current street average target price of $16.10 is 20.06%. Adding the current dividend yield of 14.02% gives us a total return of a very nice 34.08%.
So we have to exercise a little patience here as management adjusts the portfolio. But in the meantime, investors continue to collect a very attractive dividend.
As always, just one opinion.
I am currently going through the prospectus supplement for the recently issued 7% notes. It is about an inch thick and also contains the risk factors. Other than the normal risk factors for BDC's, I see none that are especially troublesome for NEWT. They have been doing their thing for some time.
We could get Q1 numbers within the hour.
P.S. Like me, looks like you are a long time investor.
Nice post Camino.
This is a very interesting BDC so today's reporting of Q1 should be interesting even if it may be the slowest Q of this year. The projected growth going through 2016 and 2017 is intriguing.