NEW YORK (AP) -- Shares of investment firm KCAP Financial Inc. jumped 5.4 percent Friday after a Stifel Nicolaus analyst upgraded the company's rating, citing benefits to KCAP from its acquisition of Trimaran Advisors in February.
THE SPARK: Stifel Nicolaus analyst Greg Mason noted that the Trimaran acquisition included holdings of complex loan securities that boost KCAP's earnings. Trimaran manages funds based on the securities and earns management fees from investments by the funds. More specifically, Mason wrote in a note, the Trimaran acquisition increases the likelihood of additional securities being issued, producing higher management fees for KCAP.
THE BIG PICTURE: New York-based KCAP changed its name last month from Kohlberg Capital Corp. KCAP specializes in securities of privately held middle-market companies. The firm installed a new chief financial officer last spring, a change that analysts said removed some of the uncertainty about the firm and its valuation practices.
The firm raised its quarterly dividend in June by 33 percent, to 24 cents per share, citing the benefit of the Trimaran acquisition.
THE ANALYSIS: Mason upgraded KCAP to "Buy" from "Hold." In addition, he said, Stifel Nicolaus is raising its earnings estimate for 2012 to 84 cents per share from the previous 76 cents, and for 2013 to $1.04 per share from 81 cents.
Stifel Nicolaus' 52-week target price for KCAP shares is $9.50. The shares now are trading at around $8.50.
Mason said he believes the shares will rise "as KCAP investors realize that the recent dividend increase is not a short-term event, and earnings growth in 2013 will increase the likelihood for future dividend growth."
SHARE ACTION: KCAP shares advanced 44 cents, or 5.4 percent, to $8.56 in early afternoon trading, near their high for the day. The shares have traded between $5.50 and $8.58 in the past 52 weeks.
- Stifel Nicolaus