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Apollo Investment Reports Ugly Q2-16

|Includes: Apollo Investment (AINV)

Apollo Investment had too high a weighting in energy loans when the pricing collapse for WTI began. Everyone knew that some amount of pain was just around the corner. This is the quarter when AINV started going around that corner. The size of the drop in NAV, TII and NII surprised even me.

Apollo Investment Corporation reported for Q2-16 Total investment income of $76.469 million ($0.3384/share). Net investment income was $36.064 million ($0.1596/share). The net asset value per share was $6.90 compared to $7.28 at the end of last quarter. AINV had $76.469 million or $0.3459/share in realized and unrealized losses. Share repurchases of $6.073 million (1.089 million shares) added a penny to NAV. Oil and Gas energy investments were 11.6% of AINV's portfolio at the end of Q2-16.

The non-accruals that we knew were coming started coming in Q1 - and they just kept on coming in Q2: As of June 30, 2016, 11.8% of total investments at amortized cost, or 4.5% of total investments at fair value, were on non-accrual status. As of March 31, 2016, 8.4% of total investments at amortized cost, or 4.2% of total investments at fair value, were on non-accrual status. As of June 30, 2015, 2.5% of total investments at amortized cost (or 0.4% of total investments at fair value) were on non-accrual status.

The analyst projections from Yahoo Finance:

Earnings Estimate

  Current Qtr. Next Qtr. Current Year Next Year
No. of Analysts 15 15 15 15
Avg. Estimate 0.19 0.19 0.77 0.78
Low Estimate 0.18 0.18 0.72 0.71
High Estimate 0.21 0.2 0.8 0.82
Year Ago EPS 0.22 0.21 0.83 0.77
Revenue Estimate Current Qtr. Next Qtr. Current Year Next Year
No. of Analysts 9 9 10 10
Avg. Estimate 83.53M 81.97M 320.75M 321.35M
Low Estimate 80.32M 74.1M 259M 259M
High Estimate 86.89M 86.27M 344.88M 344.1M
Year Ago Sales 101.67M 98.42M 379.75M 320.75M

My spreadsheets:

Apollo Q2-2016 Q1-2016 Q4-2015 Q3-2015 Q2-2015 Q1-2015 Q4-2014 Q3-2014 Q2-2014 Q1-2014 Q4-2013 Q3-2013 Q2-2013
Realized & Unrealized Gains -78.150 -68.015 -73.863 -51.308 -44.596 -63.800 -77.742 -23.721 11.085 20.293 54.395 26.839 -33.563
Realized & Unrealized Gains/share - $0.3459 - $0.2976 - $0.3190 - $0.2175 - $0.1884 - $0.2695 - $0.3284 - $0.1002 $0.0468 $0.0857 $0.2298 $0.1134 - $0.1418

Apollo Q2-2016 Q1-2016 Q4-2015 Q3-2015 Q2-2015 Q1-2015 Q4-2014 Q3-2014 Q2-2014 Q1-2014 Q4-2013 Q3-2013 Q2-2013
Fee Income 1.769 4.425 0.747 2.898 3.538 1.134 4.596 4.395 2.362 2.691 3.396 2.255 4.514
Total Income 76.469 85.335 94.325 98.420 101.666 102.115 110.026 118.910 102.580 96.405 94.561 93.708 96.673
Fee Income % of TII 2.31% 5.18% 0.79% 2.94% 3.48% 1.11% 4.18% 3.70% 2.30% 2.79% 3.59% 2.41% 4.67%

Prepayment + accelerated OID 5.100 0.100 0.300 4.500 8.000 6.700 9.300 21.900 6.100 5.500 2.500 9.000 7.800
Pre + Fee Dollars 6.869 4.525 1.047 7.398 11.538 7.834 13.896 26.295 8.462 8.191 5.896 11.255 12.314
Pre + Fee % of TII 8.98% 5.30% 1.11% 7.89% 11.35% 7.67% 12.63% 22.11% 8.25% 8.66% 6.23% 12.01% 12.74%

Apollo Q2-2016 Q1-2016 Q4-2015 Q3-2015 Q2-2015 Q1-2015 Q4-2014 Q3-2014 Q2-2014 Q1-2014 Q4-2013
Total investment income 76.469 85.335 94.325 98.420 101.666 102.115 110.026 118.910 102.580 94.561 94.561
Net investment income 36.064 44.618 48.091 49.561 50.986 52.071 56.662 65.688 53.201 49.683 49.683
Investments @ fair value 2.618 2.917 3.069 3.194 3.314 3.350 3.514 3.665 3.645 3.479 3.184
Wt Av Share Count 225.941 228.5* 231.537 235.873 236.741 236.741 236.741 236.741 236.741 236.741 224.741
TII/share $0.3384 $0.3734 $0.4074 $0.4173 $0.4294 $0.4313 $0.4647 $0.5023 $0.4333 $0.3994 $0.4207
NII/share $0.1596 $0.1953 $0.2077 $0.2101 $0.2154 $0.2199 $0.2393 $0.2775 $0.2247 $0.2097 $0.2211
NAV/share $6.90 $7.28 $7.56 $7.83 $8.01 $8.18 $8.43 $8.72 $8.74 $8.67 $8.57
Wt Av Yield 11.0% 11.0% 11.4% 11.6% 11.5% 11.2% 11.1% 11.0% 11.1% 11.1% 11.4%

* I did not find the Q1-16 weighted average share count. I averaged the ending count from Q1 with the average count from Q4

There was 'bad news' already priced into AINV. I will have to spend some time with the conference call notes this weekend. It may be the case that the size of the bad news already in the price fails to match up with the bad news ahead for AINV. For most of 2016 - this mismatch worked in favor of AINV and its shareholders. That may no longer be the case.

Disclosure: I am/we are long AINV.