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ABDC: Q1 2019 NAV Improves As Company Explores Strategic Alternatives

By Lisa Thompson



Alcentra Capital's (ABDC) reported Q1 2019 earnings and again increased NAV. The new management team continues to execute on its strategy of rotating toward a larger middle market, senior secured debt portfolio. Its goal is to both improve earnings and to decrease the discount of the stock price to NAV. Because of the portfolio’s underperformance its largest shareholder is urging that management seeks strategic alternatives to maximize shareholder value, up to and including the sale of the company. Management is currently in the process of exploring options. If these efforts are successful, we believe the share price could move closer to the portfolio’s NAV.

NAV again increased in Q1 over Q4 and the stock price to NAV discount decreased to 26% from 31% the previous quarter and 43% the quarter before that. This was aided by the buying back of 229,729 shares, for $1.5 million during the quarter. Given the discount of the stock price to NAV, buying back stock is now low risk way to provide return to shareholders. In pursuit of that goal it is also buying back stock which also increases NAV. Since January 1, 2018, Alcentra has repurchased approximately 9.5% of its shares outstanding. As of May 6, 2019, it had $5.7 million of repurchase authority remaining under the current repurchase program.

For the first quarter of 2019, the company reported total investment income of $6.4 million versus $8.2 million last year, a decline of 21%. This decrease was due primarily to two prepayment penalties totaling $1.4 million received in the first quarter of 2018, along with the continued transition of the portfolio to lower-yielding senior secured loans. Net investment income was $2.9 million, or $0.22 per share versus $3.8 million and $0.27 per share last year.

Net asset value (NAV) was $11.17 per share as of March 31, 2018 versus $11.13 per share, on December 31, 2018. During Q1 the company exited or received proceeds from repayments, loan dispositions and amortizations on investments of $50 million and invested $26 million. As of March 31, the company’s $214 million portfolio was composed of 29 investments, comprised of 28 companies, and one rated CLO debt instrument. It was invested 92% in debt and 8% in equity.

Of the 28 portfolio companies, there were two write-downs this quarter totally $3.2 million: Battery Solutions ($0.5 million) and Envocore ($2.7 million.) Five positions were written up totaling $2.7 million: Champion One ($0.2 million), Conisus ($1.7 million), Lugano ($0.2 million), Superior Controls ($0.6 million and the Goldentree CLO ($0.03 million.) The portfolio value decreased to $214 million from $235 million in Q4 2018.

At $8.27, the shares trade at a 26% discount to the company’s $11.17 NAV (net asset value) per share, improved from the 31% last quarter. NAV has declined from the $14.63 per share at the time of its May 2014 IPO, but has been on the rise for the past three quarters since new management took over. The company is actively working to revamp the portfolio and decrease the discount of the stock price to the NAV. At its current price, Alcentra’s current dividend yield is 8.7%, below the average of 9.7%. In addition to its regular dividend, this quarter Alcentra declared an additional one-time spill-over dividend of $0.15.

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