Grid IconAll Posts Blog

BDC Common Stocks Market Recap: Week Ended June 25, 2021

Posted on June 28, 2021
 
BDCs: BBDC, Multiple

BDC COMMON STOCKS

Week Twenty-Five

Revival

When we last wrote the Market Recap, BDC common stocks were in retreat in price terms, as were the major indices.

Investors in the sector had just endured the biggest percentage drop in BDC prices since Halloween 2020 – seemingly a lifetime away.

For our part, while we did not preclude a further sag in BDC prices,  the outlook remained favorable, underpinned by strong fundamentals:

“The BDC Reporter continues to believe the pullback that began this week will remain relatively shallow and not reach even “correction” status”.

So far – and we’re only one week along – our cautious optimism appears to have been justified.

Both the broader markets and the BDC sector bounced – partly – back this week, recovering more than half of the ground lost.

BDCZ – which closed Friday June 18, 2021 at $19.46, moved up to $19.83, a 1.90% gain.

(The S&P 500 – thanks to a possible infrastructure deal coming out of Washington D.C. – was also up, reaching a new high).

 

Plenty

While the week before only two individual BDCs eked out a price gain, this week there were 32 amongst the 41 we track.

Amongst the 32, 6 increased in price by 3.0% or more.

Top of the list in this regard was Prospect Capital (PSEC), up 4.75%.

Following were Bain Capital (BCSF); Gladstone Investment (GAIN); Saratoga Investment (SAR); Owl Rock Capital (ORCC) and Main Street Capital (MAIN).

 

The Few

Conversely – and in sharp contrast to the week before – no individual BDC stock dropped (3.0%) or more in price.

Ironically, the biggest percentage loser was OFS Capital (OFS) – down (2.98%) during the period – but also one of two BDCs that reached a new 52 week high intra-week.

OFS reached $10.30 on Monday (just before its dividend) before closing Friday at $9.78.

 

Favorable

The other BDC to reach a new 52 week high was Barings BDC (BBDC), presumably boosted by a favorable analyst call from Derek Hewett of BofA Securities .

Here are some of the highlights of that call, copied from a Seeking Alpha article on the subject:

  • “BBDC “has successfully repositioned the old Triangle Capital franchise, creating a high quality BDC with a sustainable business model, in our view,” Hewett writes in a note to clients.
  • Both profitability and earnings visibility have improved and its MVC Capital acquisition, along with other cross-platform opportunities, “suggest further earnings upside over time,” he adds.
  • Lifts price target to $11.25 from $9.00 and increase core EPS estimate for 2021 to 89 cents from 86 cents and for 2022 to 92 cents from 88 cents”.

We can’t say we differ with any of the characterizations above.

The BDC Reporter’s own “price target” for BDDC –  looking out 5 years – is $12.32 – 9.5% higher than BOfA and 16.3% above the current price.

Over half a decade that’s an aggregate total return of 58%, or 11.5% per annum.

We assume the current $0.80 annualized dividend will increase up to $0.88 and the terminal price assumes a multiple of 14x the payout, versus 13.6x currently.

All to say that our price target may be based on more aggressive assumptions than BofA’s.

Anyway, at BBDC’s current price of $10.59, the current yield is 7.6%.

YTD, the stock is up 15.1%.

 

Better

With this week’s upward jag, 32 of 41 BDCs are in the black over a 1 month period and 40 of 41 YTD.

Using a 50 Day Moving Average price, 23 BDCs are in the black and 18 in the red.

If we switch the lens to a 200 Day Moving Average, all BDCs are ahead.

Furthermore, the number of BDCs trading above book has moved up to 16, or 39% of the total.

On a YTD basis, BDCZ is up 22.2%.

The Wilshire BDC Index – using its total return function – is only (1.7%) below its YTD and all-time high (using weekly Friday closing prices).

 

GPS

All the above to point out that the BDC sector may no longer be at the top of Everest in price terms, but is only slightly below.

Now that dividends have been paid out and with earnings season only a few weeks away, we may yet see the sector reach even higher heights than on June 10 when BDCZ reached $20.29 intra-day, the apex to date.

As always, much will depend on the animal spirits in the broader markets and whether the BDC Reporter’s optimism about higher book values and stable to increasing earnings showing up in the IIQ 2021 results proves accurate.

In fact – and it’s a sad reflection on how the tail wags the dog where BDC stock prices are concerned – we could envisage higher BDC prices as part of general market enthusiasm even if BDC results were weaker than anticipated, but not if the major indices weaken for whatever reason.

 


BDC Reporter Premium

Free 7 Day Trial!

If you are interested in comprehensive daily coverage of what’s happening in the Business Development Company sector consider becoming a subscriber to BDC Reporter’s premium services: “BDC News Of The Day”. We provide the only daily update on every material development at 45 publicly traded BDCs and for a very affordable monthly fee.

LEARN MORE AND SIGN UP
FREE 7 DAY TRIAL!

Disclaimer: The information on this blog site is for informational purposes only.  Advantage Data makes no representations as to the accuracy, completeness, suitability, or validity, of any information. Advantage Data will not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. All information is provided AS-IS with no warranties and confers no rights. Information is not and should not be considered professional financial investment advice. In all events, Advantage Data is not a broker-dealer, shall not operate as a broker or a dealer, is not holding itself out as a broker or dealer and is not engaged in the business of buying or selling securities or otherwise required to register with the National Association of Securities Dealers.


Are you using AdvantageData?

AdvantageData is your fixed income solution for pricing, analytics, reports, and insight on approximately:

  • 500,000+ U.S. and international corporate bonds
  • Over 300,000+ BDC fair value assessments dating back to 2000
  • Over 22,000+ syndicated loans
  • Over 100 equity markets worldwide
  • One platform 15 products and services from debt to loans to mid-market
  • Used by top buy and sell-side firms worldwide

Share

facebook share icon twitter share icon linkedin share icon
Ready to get Started? Free Trial