BDC Common Stocks Market Recap: Week Ended June 4, 2021Posted on June 8, 2021
BDC COMMON STOCKS
Regular readers will already know how BDC sector prices have been moving due to our daily chronicling in the BDC Market Agenda.
With BDCZ – the UBS Exchange Traded Note which holds most of the sector’s stocks – reaching new heights for 7 days in a row, we’ve been regularly commenting about the ongoing rally.
On Friday, we noted that BDCZ was up to a new 52 week high of $19.98.
These are historic times where BDC stock prices are concerned and deserves regular updates.
Interestingly, the BDC rally – after taking a brief step back between May 7 and May 12 – is actually gaining steam.
For example, this week BDCZ was up 2.04%, the highest weekly percentage increase since the week ended March 12, and substantially above the week before when the jump was 1.29%.
Furthermore, 40 individual BDCs were up in price versus 31 last week and the highest number in 8 weeks.
12 individual BDCs were up 3.0% or more on the week – also the best performance in two months – and none dropped (3.0%) or more, which is very unusual.
We count 17 BDCs hitting new 52 week highs just in the last week, and 19 trading above book value – the highest number all year.
In 2021 Alone
If we look at the data from a YTD perspective, we see that BDCZ is up 23.1% in price terms.
The Wilshire BDC Index – which we principally use for a “total return” calculation – is up 30.4%.
In just 22 weeks…
Seeking Alpha shows that in 2021 EVERY BDC has increased in price.
That includes Great Elm Capital (GECC) – long the exception to the rule – which picked up steam this week.
Some of the YTD price increases are truly impressive, while also definitely unsustainable.
Leading the pack YTD – as well as this week – is Newtek Business Services (NEWT), which has nearly DOUBLED in price: 96.55%.
However, there are many other 2021 success stories besides NEWT – which is in a category by itself compared to its BDC peers.
Capitala Finance (CPTA) is out of the dumps this year – even with a mediocre take-over from a new manager – at 74.1%.
Third in line is Prospect Capital (PSEC), up 64.1%.
Investors seem to be enamored of the BDC even as its dividend has remained unchanged.
Most likely, the market had been positioning itself for bad news where PSEC is concerned – a not unreasonable attitude given 2020’s fundamentals – and has had a change of heart.
Also worth noting for their very large 2021 price increases are Oxford Square (OXSQ), up 62%; BlackRock Capital (BKCC) up 58% and Capital Southwest (CSWC) up 54%.
In fact, 19 of 43 BDCs are up 30% or more in price this year, or 44% of the public universe.
At the other end of the price increase table, there are 4 BDCs who’ve not managed to increase their price by double digit percentages.
There’s GECC, as well as the two SLR BDCs – SLRC and SUNS – and – curiously – Goldman Sachs BDC (GSBD).
That last name was previously an investor favorite, trading at close to $26 a share a few years ago while paying a $1.80 annual regular distribution, as the chart below illustrates.
Currently, GSBD is paying the same regular distribution and has been adding in three “special” payouts as well, but closed the week at $20.08, more than (20%) off its highest highs.
GSBD is only up 5.6% this year while other perennial investor favorites like Main Street (MAIN) have increased 28% and Ares Capital (ARC)) – to name but two – 17%.
Maybe some of the newly public shareholders created by the merger of GSBD’s sister non-traded BDC into the public vehicle are selling out, keeping the price down. Relatively speaking.
At the moment, GSBD trades at 9.3x its 2021 projected Net Investment Income, while ARCC is at 11.4x and MAIN trades at 16.9x !
(All three BDCs trade at a premium to book value).
We’ve given up trying to predict when this period of good feelings, where everything moves up in price, will end.
As we’ve noted repeatedly in our Market Agendas and other writings, many BDCs (24 to be specific) are trading above their year-end 2019 level.
Even some players who cut their dividends in 2020 and/or who’ve seen their NAV Per Share drop since the pandemic, are trading above their 12/31/2019 price level.
Have a look at the BDC: NAV Change Table, which illustrates this phenomenon.
Where the BDC market is concerned these are the “roaring 20’s” and we have no idea how far prices might yet go and over what period.
A “great revaluation” of BDC stocks is going on that’s not necessarily based on earnings or dividend growth going forward.
The BDC Reporter has been compiling 2021 and 2022 earnings estimates.
In aggregate, the analysts are expecting BDC sector EPS to grow less than 2% in 2022 over 2021.
We also estimate that dividend growth over the next 12 months – which we also estimate for every BDC – will only amount to 2.7%.
Investors are pushing up BDC prices for the perceived stability of those dividend payouts over the long term and the paucity of comparable “high yield” alternatives.
In any case, as long as general market enthusiasm – itself at or close to all-time highs – continues, the BDC sector should follow suit.
As always, the BDC Reporter will be tracking the ups – and inevitable downs – in almost real-time.
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