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CPTA Has Small NII Beat And Big NAV Loss

|Includes: Capitala Finance Corp (CPTA)

What They Earned Capitala Finance Corp. reported for calendar Q2-16 Total Investment Income of $17.358 million ($1.0965/share) and Net Investment Income of $7.441 million ($0.4701/share). The Net Increase in Net Assets Resulting from Operations was -$2.013 million ($0.1272/share) due to - $9.454 million (-$0.5972/share) of realized and unrealized appreciation during the quarter. CPTA's net asset value per share was $15.68 compared to $16.28 last quarter. The fair value of CPTA's energy investments represented 4.1% of the portfolio.

The NII beat did not cover the 'old' dividend of $0.471/share - but covers the now reduced dividend of $0.39/quarter.

The consensus projections from Yahoo Finance:

  Current Qtr. Next Qtr. Current Year Next Year
No. of Analysts 11 11 9 11
Avg. Estimate 0.46 0.44 1.82 1.72
Low Estimate 0.40 0.39 1.72 1.56
High Estimate 0.47 0.47 1.88 1.9
Year Ago EPS 0.48 0.47 1.66 1.82
Revenue Estimate Current Qtr. Next Qtr. Current Year Next Year
No. of Analysts 7 7 9 9
Avg. Estimate 16.58M 16.79M 67.77M 69.29M
Low Estimate 15.5M 15.3M 64.4M 63M
High Estimate 17.19M 17.76M 70.13M 79.36M
Year Ago Sales 18.3M 16.55M 63.98M 67.77M

The bad news:

  Q3-16 Q2-16 Q1-16 Q4-15 Q3-15 Q2-15 Q1-15 Q4-14 Q3-14 Q2-14 Q1-14 Q4-13
Realized and Unrealized Gains -9.454 -174 -11.610 -16.324 +171 -375 +5,050 -16,248 -3,233 +578 -4,503
Realized and Unrealized Gains/share -0.5972 -.0110 -.7355 -1.0345 +.0106 -.0235 +.3892 -1.2524 -.2492 +.0446 -.3471

The PWAY is high enough to provide a warning that losses are probable. This history of losses is really ugly.

The good news:

  Q3-16 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 17.357 16.991 17.449 16.547 18.304 15.084 14.041 12.274 11.167 12.526 12.374 7.967
Net investment income 7.441 7.431 7.421 7.407 7.787 5.317 4.817 5.067 3.544 5.634 5.721 6.100
Investments @ fair value 0.504 0.595 0.600 0.592 0.588 0.565 0.519 0.480 0.445 0.406 391.181 0.365
Wt Av Share Count 15.830 15.807 15.786 15.780 16.089 15.958 12.974 12.974 12.974 12.974 12.974 12.974
TII/share $1.0965 $1.0749 $1.1053 $1.0486 $1.1377 $0.9452 $1.0822 $0.9460 $0.8607 $0.9655 $0.9538 $0.6141
NII/share $0.4701 $0.4702 $0.4701 $0.4694 $0.4840 $0.3332 $0.3713 $0.3905 $0.2732 $0.4343 $0.4410 $0.4702
NAV/share $15.68 $16.28 $16.29 $17.04 $18.04 $17.95 $18.35 $18.56 $19.89 $20.34 $20.33 $20.71
Wt Av Yield 12.70% 12.50% 12.40% 12.1% 12.6% 11.27% 11.27% 11.60% 11.95% 12.0% 10.44% 10.17%
NII/TII 42.9% 43.7% 42.5% 44.8% 42.5% 35.3% 34.3% 41.3% 31.7% 45.0% 46.2% 76.6%
Non-performing loans at fair value 9.547 8.989 12.745 28.010 10.944 10.530 0 0 7.822 5.560 5.600
PIK Non-performing loans at fair 9.547 0 0 0 9.730 5.740 10.500 10.573 0 0 0
In Q3-16, the 2 loans on non-accrual both had a cash and PIK component. Total non-accruals are $9.547 million

The scary news:

  Q3-16 Q2-16 Q1-16 Q4-15 Q3-15 Q2-15 Q1-15 Q4-14 Q3-14 Q2-14 Q1-14
Debt 314.983 356.942 361.554 361.856 303.890 308.783 320.638 308.540 305.638 305.638 192.200
Debt/share 19.8979 22.5813 22.9035 22.9313 18.8881 19.3497 24.7139 23.7814 23.5577 23.5577 14.8142
Debt/share to NAV 126.90% 138.70% 140.60% 134.57% 104.70% 107.80% 134.68% 128.13% 118.44% 115.82% 72.87%
Interest expense 4.938 5.029 5.023 4.896 4.809 4.681 4.637 4.505 4.268 2.401 2.199
Interest expense/share 0.3119 0.3181 0.3182 0.3103 0.2989 0.2933 0.3574 0.3472 0.3290 0.1850 0.1695
Interest expense/TII 28.45% 29.60% 28.79% 29.59% 26.27% 31.03% 33.02% 36.70% 38.22% 19.17% 17.77%
Annualized Int exp/Debt 6.27% 5.63% 5.56% 5.41% 6.33% 6.06% 5.87% 5.84% 5.58% 3.14% 4.58%
PWAY - Int exp/Debt 643 bps 627 bps 794 bps 669 bps 627 bps 521 bps 540 bps 576 bps 637 bps 886 bps 586 bps

This is the most leveraged BDC. Add to that - it borrows money to loan to customers that do not (much too often) pay them back.

As of 11-04-16 CPTA was priced to yield 12.93% (at its reduced dividend) compared to a PWAY of 12.7%. Thus the market has 'right sized' the risk of CPTA. It is a bad BDC that is fairly valued. Should we care that it is fairly valued? Not me.

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