By Lisa Thompson
Alcentra Capital is a business development company (ABDC) with a disciplined portfolio approach and the benefit of an affiliation with BNY Mellon, its single largest shareholder. The company’s target market is the lower middle-market, which management believes traditional lenders underserve. ABDC shares, which provide 9.4% dividend yield not including special dividends, trades at a 6.3% premium to the company’s Q1 2017 $13.43 NAV (net asset value) per share. We believe that ABDC is worth $14.28 per share trading at a dividend rate equal to the average yield of its competitors. However this does not included the $0.06 in special dividends already declared this year. We expect the ability to pay even more special dividends in future quarters due to spill over.
➢ Alcentra Capital is a business development company (BDC) with a disciplined portfolio approach and the benefit of an affiliation with BNY Mellon, its single largest shareholder.
➢ The company’s $283 million portfolio is invested in 31 companies, with 92.3% in debt and 7.7% in equity.
➢ The company targets the lower middle-market, which is under-served by traditional lenders.
➢ To mitigate its risk, the company conducts substantial due diligence, seeks rigorous financial covenants and diversifies its investments across a broad range of sectors and portfolio companies. Its largest sector, technology and telecom, is now 18% of the total investment portfolio and healthcare services is 16%.
➢ The weighted average yield on the company’s debt portfolio is 11.7%, flat with Q4 2016 and the weighted average leverage in the debt portfolio is 3.65 times EBITDA down from 3.93 times in Q4 2016.
➢ At $14.28, the shares trade at a 6.3% premium to the company’s $13.43 NAV (net asset value) per share.
➢ Only one company is now a non-performing loan, Show Media. Its value is now written down to $2.1 million.
➢ We believe that Alcentra should be able to capitalize on the improving US economic outlook as companies seek to ramp growth with an improving regulatory environment and potential corporate tax cuts spurring demand. The company also plans to increase its leverage with the improving economic outlook. This leverage combined with debt capacity should allow it to continue to grow its investment portfolio and earning power for shareholders.
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By Lisa Thompson