Barings BDC: A Cheap Capital Markets Investment Company, But Trending Lower

Sep. 16, 2022 3:48 PM ETBarings BDC Inc (BBDC)XLF, KCE, HDV4 Comments

Summary

  • Investors have found relative safety in high-dividend companies this year.
  • Financials engaged in Capital Markets have not caught a bid, though.
  • One firm is caught in the middle and features somewhat low volatility and a solid dividend.
  • The technicals are not so sanguine, however.

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What's worked in 2022? High dividend stocks. The iShares Core High Dividend ETF (HDV) is positive since last November, back when so many once-high-flying tech stocks and small caps peaked.

What hasn't worked in that time? Capital Markets stocks, as evidenced by a 27% plunge in the SPDR S&P Capital Markets ETF (KCE). Amid a freeze in IPO activity and reduced M&A as interest rates have risen, Financials sector stocks that rely on dealmaking have struggled.

This comes as some niches of the sector are doing fine, such as regional banks. One small closed-end management company that targets the middle market for investment opportunities pays a big dividend, but it, too, is stuck in a downtrend.

Hot: Dividend Stocks. Not: Capital Markets Companies.

Hot: Dividend Stocks. Not: Capital Markets Companies.

Stockcharts.com

According to Bank of America Global Research, Barings BDC Inc (NYSE:BBDC) is a specialty finance company, regulated as a BDC that invests in debt and equity of middle market businesses. The company's objective is to achieve high total returns through current income from its debt investments and capital appreciation from equity investments. The company has some upside potential fundamentally due to its origination platform and a portfolio geared toward the tail end of the credit cycle, which we appear to be in. Downside risks include deteriorating credit markets even with a stable portfolio, reduced investment and capital markets activity, which has already been reported by some investment banks, and generally poor investment performance expectations.

The North Carolina-based $1.1 billion market cap Capital Markets industry company within the Financials sector trades at an elevated 22.6 trailing 12-month GAAP price-to-earnings ratio and pays a very high 9.7% dividend yield.

On valuation, BofA sees earnings growing sharply this year after a strong 2021 rebound. EPS is then expected to slow down through 2024, but the Bloomberg consensus forecast is more upbeat looking forward. Dividends are anticipated to increase through next year, resulting in a continued high yield, perhaps in the double digits. Its NAV is about $11.50 at last check and its forward GAAP P/E is near 10, which is quite cheap.

BBDC: Earnings, Dividend, Valuation Forecasts

BBDC: Earnings, Dividend, Valuation Forecasts

BofA Global Research

Looking ahead, BBDC's corporate event calendar by Wall Street Horizon is quiet. It has a Q3 unconfirmed earnings date of Wednesday, November 9, after market close.

Corporate Event Calendar

Corporate Event Calendar

Wall Street Horizon

The Technical Take

Baring's valuation and dividend yield are compelling, but its chart is mired in a downtrend that dates back to November last year. After rallying sharply to a high above $11.50, shares have dropped almost 20% with lower highs and lower lows throughout the year. The stock also found resistance at its downtrending 200-day moving average last month, which had confluence with its downtrend resistance line. Also notice the 'volume by price' indicator on the left - once BBDC rallied to the bar indicating the highest volume of shares previously traded, the stock quickly retreated. The $10 to $10.50 range is clearly resistance.

I do, however, see some support near $9.20. Should that level break, it might take a trip down to its downtrend support line. Overall, I'd avoid the stock for now and perhaps nibble on the next approach to the green support line.

BBDC: Trending Lower With Minor Support at $9.20

BBDC: Trending Lower With Minor Support at $9.20

Stockcharts.com

The Bottom Line

High-yield stocks have done well this year while the Capital Markets industry has struggled mightily. BBDC, a low-volatility Financials firm that pays a hefty yield, looks good on valuation while its chart is weak. Overall, long-term investors can continue to hold it for that big yield, but swing traders should avoid BBDC when looking for long opportunities.

This article was written by

CFA & CMT Charterholder | Freelance Financial Writer at SoFi & Ally | Investments | Markets | Personal Finance | RetirementI create written content used in various formats including blogs, emails, white papers, and social media for financial advisors and investment firms in a cost-efficient way. My passion is putting a narrative to financial data. Working with teams that include senior editors, investment strategists, marketing managers, data analysts, and executives, I contribute ideas to help make content relevant, accessible, and measurable. Having expertise in thematic investing, market events, client education, and compelling investment outlooks, I relate to everyday investors in a pithy way. I enjoy analyzing stock market sectors, ETFs, economic data, and broad market conditions, then producing snackable content for various audiences. Macro drivers of asset classes such as stocks, bonds, commodities, currencies, and crypto excite me. I truly enjoy communicating finance with an educational and creative style. I also believe in producing evidence-based narratives using empirical data to drive home points. Charts are one of the many tools I leverage to tell a story in a simple but engaging way. I focus on SEO and specific style guides when appropriate. My CFA and CMT backgrounds demonstrate prowess in investment management and my professional experience includes extensive public speaking and communication. Moreover, my extensive university teaching and professional trading experience provide useful skills. Past roles also include heavy use of Excel modeling and chart creation as well as PowerPoint.I am a contributor to The Dividend Freedom Tribe. I am a contributor to Topdown Charts.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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