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MAIN's Safety Improves - NAV Growth Slows

Numbers at the end of 2014

  • Total investment income of $140.8 million, representing a 21% increase from 2013
  • Distributable net investment income of $99.8 million (or $2.29 per share), representing a 25% increase from 2013 (1)
  • Net investment income of $95.5 million (or $2.20 per share), representing a 27% increase from 2013
  • Net realized gains of $23.2 million (or $0.53 per share), resulting primarily from the full exit of four LMM portfolio equity investments
  • Net asset value of $20.85 per share at December 31, 2014, representing an increase of $0.96 per share, or 5%, compared to $19.89 per share at December 31, 2013, or an increase of $1.51 per share, or 8%, after excluding the effect of the supplemental dividends paid in 2014 totaling $0.55 per share

Numbers at the end of 2013

 

  • Total investment income of $116.5 million, representing a 29% increase from 2012
  • Distributable net investment income of $79.6 million (or $2.17 per share), representing a 29% increase from 2012 (1)
  • Net investment income of $76.7 million (or $2.10 per share), after excluding $1.3 million of non-recurring, non-cash share-based compensation expense associated with the acceleration of the restricted shares of a retiring employee, representing a 29% increase from 2012
  • Net asset value of $19.89 per share at December 31, 2013, representing an increase of $1.30 per share, or 7%, compared to $18.59 per share at December 31, 2012, or an increase of $2.10 per share, or 11%, after excluding the effect of the supplemental dividends paid in 2013 totaling $0.80 per share

NII growth from 2.10 to 2.20 --- growth of 4.76%

NAV growth from 19.89 to 20.85 --- growth of 4.82% (compared to growth of 7% in 2013)

Lower Middle Market Portfolio Information at the end of 2014

The weighted average annual effective yield on our LMM portfolio debt investments was 13.2%

median net senior debt (senior interest-bearing debt through our debt position less cash and cash equivalents) to EBITDA 2.0 to 1.0

median total EBITDA to senior interest expense 3.5 to 1.0

LLM at the end of 2013

The weighted average annual effective yield on our LMM portfolio debt investments was 14.7%
median net senior debt (senior interest-bearing debt through our debt position less cash and cash equivalents) to EBITDA 2.3 to 1.0
median total EBITDA to senior interest expense 2.9 to 1.0

The change - yield down big, leverage down, interest coverage up. This is evidence of a shift towards a safer portfolio.

Middle Market Portfolio - The weighted average annual effective yield on our middle market portfolio debt investments was approximately 7.8%. Yield was the same in 2013

Private Loan Portfolio - The weighted average annual effective yield on our private loan portfolio debt investments was approximately 10.1%. Yield was 11.3% in 2013.

NPAs - As of December 31, 2014, we had five investments on non-accrual status which comprised approximately 1.7% of the total investment portfolio at fair value and 4.7% of the total investment portfolio at cost. Our total portfolio investments at fair value were approximately 108% of the related cost basis as of December 31, 2014.

At the end of 2013 - As of December 31, 2013, we had two investments on non-accrual status which comprised approximately 2.3% of the investment portfolio at fair value and 4.7% of the total investment portfolio at cost. Our total portfolio investments at fair value were approximately 111% of the related cost basis as of December 31, 2013.

Summary - Evidence of a safer portfolio (and portfolio was 'safe enough' to begin with) provided in the LMM portfolio debt metrics may/could offset evidence of slower growth.

The bad news:

Earnings Est Current Qtr.
Dec 14
Next Qtr.
Mar 15
Current Year
Dec 14
Next Year
Dec 15
Avg. Estimate 0.58 0.58 2.18 2.39
No. of Analysts 8.00 8.00 8.00 8.00
Low Estimate 0.56 0.55 2.17 2.30
High Estimate 0.59 0.61 2.20 2.61
Year Ago EPS 0.57 0.52 2.06 2.18

The current 2015 growth projection of (2.39/2.18) 9.63% could easily fall to 4% based on the 5% growth trend in 2014 combined with the falling weighted average yield stats. And slowing NII and NAV growth is likely to cause a decline in the existing price/NAV premium.

The good news - Analysts do not project - they 'echo'. And MAIN gets to spin the numbers in their call. They could easily have a 'safer MAIN' story to sell. To arrive at a valuation for MAIN, the retail investor has to juggle more numbers than they are capable of handling. They will wait on the analysts to tell them what to think. MAIN will get the chance to tell the analyst what to think before the analysts tell the retail investors what to think.

Disclosure: The author is long MAIN.