What most retail investors see when they look at MRCC - "the yield is too dang low." What I see when I look at MRCC - "you can get a dividend that is THAT strongly covered in NII at still get a yield of 9%???"
Q2-16 had a NII beat, a TII beat and a NAV gain. This was a 'full glass' quarter (as opposed to the 'glass is half full' quarter being generated by most).
Monroe Capital Corporation Reports NII of $0.4427 compared to a dividend of $0.35/share
What They Earned Monroe Capital Corporation reported for Q2-16 Total Investment Income of $11.118 million ($0.8547/share). Net Investment Income was $5.759 million ($0.4427/share). The Net Increase in Net Assets Resulting from Operations was $5.277 million ($0.4057/share). NAV was $14.50 compared to $14.45 last quarter.
The consensus analyst numbers from Yahoo Finance:
|Current Qtr.||Next Qtr.||Current Year||Next Year|
|No. of Analysts||10||10||7||9|
|Year Ago EPS||0.43||0.36||1.6||1.7|
|Revenue Estimate||Current Qtr.||Next Qtr.||Current Year||Next Year|
|No. of Analysts||7||7||8||7|
|Year Ago Sales||9.52M||9.17M||36.9M||44.22M|
|Sales Growth (year/est)||10.80%||19.30%||19.80%||9.70%|
|Realized & Unrealized Gains||-0.482||2.157||-793||242||-7||-291||-419||-437||-848||538||-672||-447||438||1797|
|Realized & Unrealized Gains/share||-0.0371||0.1658||-0.0617||0.0193||-0.0006||-0.0304||-0.0440||-0.0459||-0.0885||0.0551||-0.06724||-0.0501||0.0761||0.3125|
In April of 2015 MRCC did a public offering of 2,450,000 shares of its common stock at a public offering price of $14.85/share while the March ending NAV was $14.18. That event should have increased NAV - but MRCC does not disclose the specific amount of NAV increase per share for this event.
In July of 2013 MRCC did a public offering of 4,000,000 shares of its common stock at a public offering price of $14.05 per share while the June ending NAV was $14.01.
|Prepayment gain (loss)||232||337||301||159||503||267||356||223||144||229|
|Accretion of discounts and amortization of premium||389||365||320||308||279||198||209||169||150||161|
|The above are the components of total interest income. Dividend income needs to be added to arrive at total investment income.|
|Total investment income||11,118||11,539||10,126||9,172||9,519||8,081||8,683||7,668||7,046||6,516|
|Percent of TII from Fee + Prepayment + Accretion||10.23%||8.95%||7.10%||7.02%||14.09%||12.77%||14.72%||10.16%||7.12%||9.01%|
|Total investment income||11.118||11.539||10.126||9.172||9.519||8.081||8.683||7.668||7.046||6.516||6.395||4.347||3.752||3.719|
|Net investment income||5.759||5.787||5.005||4.498||5.071||4.167||4.621||3.810||3.501||3.130||3.184||2.413||1.550||1.503|
|Adjusted NII before incentives||4.560||3.727||3.345||3.238||3.074||2.450||1.702||1.672|
|Investments @ fair value||0.343||0.343||0.341||0.330||0.283||0.253||0.234||0.235||0.238||0.225||0.208||0.169||0.144||0.134|
|Wt Av Share Count||13.008||13.008||12.861||12.545||11.718||9.562||9.518||9.527||9.582||9.761||10.000||8.922||5.765||5.751|
|Adjusted NII/share - my calculation||$0.4791||$0.3912||$0.3491||$0.3317||$0.3074||$0.2746||$0.2952||$0.2907|
|Adjusted NII/share - their calculation||$0.43||$0.47||$0.40||$0.36||$0.43||$0.44||$0.49||$0.40||$0.37||$0.32||$0.32||$0.27||$0.27||$0.26|
|NII/share - my calculation||$0.4427||$0.4449||$0.3892||$0.3585||$0.4328||$0.4358||$0.4855||$0.3999||$0.3654||$0.3207||$0.3184||$0.2704||$0.2689||$0.2613|
|Wt Av Yield||9.8%||9.9%||10.3%||10.5%||10.8%||11.1%||11.0%||10.8%||10.5%||10.2%||9.9%||9.5%||9.6%||9.8%|
|Prepayment and amendment fees along with paydown gains added $0.05/share more than usual in Q4-14|
|Typically - 'adjustments' produce more real numbers. MRCC adjustments did the opposite. That stoped in Q1-15|
What They Own: The Company had debt and equity investments in 55 portfolio companies (which is less diversification than I like), with a total fair value of $342.8 million, as of June 30, 2016 as compared to debt and equity investments in 53 portfolio companies, with a total fair value of $343.5 million, as of March 31, 2016. The Company's portfolio consists primarily of first lien loans, representing 74.3% of the portfolio as of June 30, 2016 and 75.1% of the portfolio as of March 31, 2016. As of June 30, 2016, the weighted average contractual yield on the Company's investments was 9.8% and the effective yield was 9.8%.
The almost bad news: At $15.66, the yield (140/1566) of 8.94% is too low below the PWAY. But if run rate NII is close to the current $0.44/share - the dividend should grow to as much as $0.40/share (and that is still being very conservative). At that dividend, the yield would be (160/1566) 10.21%. When viewed through that 'what if' metric prism, MRCC is still under valued. And that is after having a very good year to date in 2016.
The bad news: Let's test driving one of my favorite metrics. Just how safe if the MRCC dividend? You can the dividend coverage by NII - and the dividend looks very safe. But there is another metric that calculates dividend safety - and that is by comparing the dividend/NAV ratio to the PWAY - where the PWAY needs to be 150 bps above the div/NAV (or lower for low fee BDCs). With a new NAV of $14.50, the MRCC div/NAV ratio is (140/1450) 9.66%. That is below the PWAY - but not by enough. I am tempted to give MRCC an exception for the low PWAY, but the very average NII/TII ratio prohibits me from giving it an exception.
At a 'what if' dividend of $0.40/share, the MRCC div/NAV ratio would be (160/1450) 11.03%. That is well above the PWAY - and that would be a very bad thing.
The comparison of NII to the dividend promotes a high expectation of dividend growth. The "div/NAV to PWAY" comparison does not. I need to keep that second comparison in mind - or the result could be some irrational exuberance for MRCC.
Disclosure: I am/we are long MRCC.