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Triangle Capital Corporation Reports An Ugly Q2 - And Climbs In The After Hours Market

|Includes: Triangle Capital (TCAP-OLD)

TCAP had a penny beat in NII - which explains the positive headlines and the gain in after hours trading. TCAP had a significant NAV fall along with a significant rise in non-accruals. Those numbers should result in a price fall.

Something ugly is going on. TCAP has a new CEO which has already cut the dividend. An optimist might think the cut came so the new guy can look like a hero when TCAP raises the dividend after the appropriate waiting period. But that does not explain the big NAV drop this quarter - nor does it explain the big rise in non-accruals. It is way too early to say that the optimists are not right. But it is a sure thing that I would rather be watching TCAP from the sidelines as opposed to making any bets on it in the here and now. It may be the case that the old CEO got out in the nick of time.

Triangle Capital Corporation reported for Q2-16 Net Investment Income of $16.339 million ($0.4870/share). Total Investment Income was $28.422 million ($0.8472/share). The Net Increase in Net Assets Resulting from Operations was $6.687 million ($0.1991/share) due to $9.652 million in realized and unrealized gains. The NII/TII ratio was 57.49%. TCAP's net asset value per share was $14.82 compared to $15.02 at the end of Q1-16.

The analyst projections from Yahoo Finance:

Earnings Estimate

  Current Qtr. Next Qtr. Current Year Next Year
No. of Analysts 8 8 6 8
Avg. Estimate 0.48 0.49 1.75 2.05
Low Estimate 0.45 0.47 1.73 1.96
High Estimate 0.5 0.51 1.78 2.12
Year Ago EPS 0.49 0.56 2.16 1.75
Revenue Estimate Current Qtr. Next Qtr. Current Year Next Year
No. of Analysts 6 6 7 8
Avg. Estimate 27.99M 28.63M 113M 127.55M
Low Estimate 27.69M 27.98M 110.58M 115.81M
High Estimate 28.53M 29.06M 115M 136.77M
Year Ago Sales 27.82M 30.84M 121.29M 113M
Sales Growth (year/est) 0.60% -7.20% -6.80% 12.90%

My spreadsheets:

  Q2-16 Q1-16 Q4-15 Q3-15 Q2-15 Q1-15 Q4-14 Q3-14 Q2-14 Q1-14 Q4-13  
Realized & Unrealized Gains -9.652 2.825 -1.039 -2.597 -12.542 -15.475 -24.106 10.123 -1.074   5.906
Realized & Unrealized Gains/share -0.2874 0.845 -0.0312 -0.0781 -0.3789 -0.5197 -0.7926 0.3627 -0.0386   0.2138

 
  Q2-16 Q1-16 Q4-15 Q3-15 Q2-15 Q1-15 Q4-14 Q3-14 Q2-14 Q1-14 Q4-13
Interest income 21.110 21.761 x 22.595 21.232 21.150 x 21.058 17.494 20.230 x
Dividend income 0.651 -1.087 x 0.582 0.327 1.845 x 0.970 0.996 x x
Fee income 2.779 2.034 x 3.746 2.435 3.834 x 1.339 2.247 x x
PIK income 3.826 3.911 x 3.862 3.764 3.897 x 3.756 4.147 3.734 x
Interest on cash 0.055 0.037 x 0.058 0.067 0.053 x 0.062 0.057 0.075 x
Total investment income 28.422 26.656 31.839 30.843 27.825 30.780 30.657 24.876 24.940 24.039 21.991

TCAP began the separation of dividend and fee income from interest income in Q2-15

How do you have negative dividend income? The decrease in dividend income in Q1-16 includes a negative true-up adjustment of $1.3 million related to a portfolio company distribution that was received in 2015. In 2015, Triangle received information that indicated the tax character of the distribution was 100% dividend income, but received updated information in 2016 indicating that a majority of the distribution was a return of capital, which necessitated the adjustment.

  Q2-16 Q1-16 Q4-15 Q3-15 Q2-15 Q1-15 Q4-14 Q3-14 Q2-14 Q1-14 Q4-13
Total investment income 28.422 26.656 31.839 30.843 27.825 30.780 30.657 24.876 24.940 24.039 21.991
Net investment income 16.339 9.598 19.176 18.518 16.166 17.769 18.098 15.417 14.658 13.843 13.244
Investments @ fair value 0.931 0.940 0.977 0.968 0.885 0.877 0.887 0.842 0.736 0.690 0.664
Wt Av Share Count 33.548 33.480 x 33.275 33.235 33.099 32.950 30.412 27.910 27.805 27.697
TII/share $0.8472 $0.7962 x $0.9269 $0.8372 $0.9299 $0.9304 $0.8180 $0.8936 $0.8646 $0.7940
NII/share $0.4870 $0.2867 $0.58 $0.5565 $0.4864 $0.5368 $0.5493 $0.5069 $0.5252 $0.4979 $0.4782
NAV/share $14.82 $15.02 $15.23 $15.48 $15.47 $15.64 $16.11 $16.64 $15.95 $15.72 $16.10
Wt Av Yield 12.3% 12.3% 12.2% 12.3% 12.6% 12.8% 13.0% 13.2% 13.8% 13.9% 14.1%

. . . and now for the really bad news:

Non-Accrual Assets as a Percentage of Total Portfolio

 
Quarter at Cost at Fair Value

Q2-16 5.6% 2.2%
Q1-16 3.6% 0.9%
Q4-15 2.0% 0.7%
Q3-15 2.0% 0.7%
Q2-15 3.1% 1.6%
Q1-15 6.1% 2.7%
Q4-14 5.8% 3.0%
Q3-14 8.3% 3.8%

So the question remains - is the new CEO purposely reporting poor numbers in the here and now so that he can look like a hero in the future? That is not the kind of conduct that generates my faith and confidence. And what if things are as bad as reported? Then TCAP lacks the favorable attributes to sell at so low a relative yield.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.