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Hercules Technology Beats Q2 Earnings on Lower Expenses

Zacks Equity Research

Hercules Technology Growth Capital, Inc. (HTGC) reported distributable net operating income (:DNOI) of 34 cents per share in second-quarter 2014, outpacing the Zacks Consensus Estimate of 30 cents. The figure also compared favorably with the year-ago DNOI of 32 cents.

Results benefited from a decline in expenses and rise in total interest income, partially offset by a decrease in total fees. Moreover, Hercules Technology continued with its efficient capital deployment activities on the back of a solid liquidity position.

DNOI grew 9.5% year over year to $21.0 million.

Performance in Detail

Hercules Technology’s total investment income came in at $34.0 million, inching down 1.5% from the prior-year quarter. The fall was due to a decline in total fees, partially offset by an increase in total interest income. Moreover, the figure fell short of the Zacks Consensus Estimate of $35.0 million.

Total operating expenses were $15.5 million, down 8.7% from the prior-year quarter. The fall was prompted by a decline in all the components, partly offset by a rise in stock-based compensation.

As of Jun 30, 2014, the weighted average cost of debt comprising interest and fees, was 6.3% versus 6% as of Jun 30, 2013.

Net investment income (before investment gains and losses) for the quarter came in at $18.6 million, up 5.3% year over year.

Business Highlights

The fair value of Hercules Technology’s total investment portfolio was $991.3 million as of Jun 30, 2014, up 11.3% from Mar 31, 2014. In the quarter, the company provided approximately $173.0 million in debt and equity-financing commitment to new and existing portfolio companies.

As of Jun 30, 2014, Hercules Technology’s net asset value was $10.42 per share, compared with $10.09 as of Jun 30, 2013.

Our Viewpoint

As Hercules Technology continues to make meaningful investments in booming sectors such as technology, we foresee further scope for top-line growth. Moreover, increased capital-deployment activities pursued by the company are expected to boost investors’ confidence.  Nevertheless, an uncertain economic environment might increase cost of funding and limit the company’s growth going forward.

Currently, Hercules Technology carries a Zacks Rank #2 (Buy).

Other Mortgage Investment Firms

Among other mortgage investment companies, Ares Capital Corpo. (ARCC) reported second-quarter 2014 core earnings of 34 cents per share, which missed the Zacks Consensus Estimate of 37 cents.

American Capital, Ltd. (ACAS) reported second-quarter 2014 net operating income per share of 9 cents, significantly lagging the Zacks Consensus Estimate of 20 cents.

THL Credit, Inc. (TCRD) is expected to release results on Aug 11.

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Read the Full Research Report on ACAS
Read the Full Research Report on ARCC
Read the Full Research Report on TCRD

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