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Gladstone Investment Corp. (GAIN) Has NAV Gain With NII Miss

|Includes: Gladstone Investment (GAIN)

Investors who have metric awareness do not own GAIN. If you had metric awareness, you would not own a BDC lacking dividend coverage that had an 8.56% yield combined with a PWAY of 12.7%. The combination of those metrics makes a sound like fingernails on a chalk board.

GAIN had a NAV gain - and that is good news. That good news might be tainted due to part of the write up came in a non-accrual asset.

But of higher importance, GAIN had (1) a NII miss combined with (2) NII well below the dividend. The BDC sector regularly produces historical stats that say such numbers are very meaningful. GAIN can not sell at its current valuation if such metrics are meaningful. Something has to give - eventually.

On the other hand, revenue was above projections. A pessimist would say "so what - revenue oscillates - the current projection was probably a low ball number for a Q4 number, given that Q2 had $14.393 million in TII". But still the Q4 TII was the third highest on record. So it is a good enough number. But how much of TII made it into NII? 38.9%. That is - unconditionally - a very bad number.

The Yahoo Finance Projections:

  Current Qtr. Next Qtr. Current Year Next Year
No. of Analysts 3 2 4 2
Avg. Estimate 0.18 0.19 0.75 0.76
Low Estimate 0.17 0.19 0.73 0.75
High Estimate 0.19 0.19 0.76 0.77
Year Ago EPS 0.16 0.23 0.68 0.75
Revenue Estimate Current Qtr. Next Qtr. Current Year Next Year
No. of Analysts 2 1 2 1
Avg. Estimate 12.84M 13.03M 51.7M 51.52M
Low Estimate 12.77M 13.03M 51.54M 51.52M
High Estimate 12.92M 13.03M 51.86M 51.52M
Year Ago Sales 12.44M 14.39M 50.95M 51.7M

My spreadsheets:

  Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q3-15 Q2-15 Q1-15 Q4-14 Q3-14 Q2-14 Q1-14 Q4-13 Q3-13 Q2-13
Realized & Unrealized Gains 5.751 -5.214 17.722 17.719 -10.844 -6.133 3.396 24.163 1.750 -1.507 5.911   -15.088 8.771 -10.522
Realized & Unrealized Gains/share 0.1900 -0.1722 0.5854 0.5855 -0.3582 -0.2026 0.1124 0.8868 0.0661 -0.0569 0.2233        
Incentive Fee 1.178 0.549 1.700 1.022 1.159 1.707 1.291 1.142 1.460 1.158 1.215  
Incentive Fee/share 0.0389 0.0181 0.0562                  
  Q4-16 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 13.374 11.744 14.393 12.441 12.068 13.740 12.706 11.173 11.562 9.071 9.837 8.811 8.696
Net investment income 5.204 5.112 6.812 4.899 4.631 6.022 5.163 4.995 5.839 4.204 4.859 4.644 4.402
Investments @ fair value 0.471 0.486 0.491 0.488 0.471 0.490 0.481 0.466 0.394 0.347 0.322 0.315 0.291
Wt Av Share Count 30.271 30.271 30.271 30.262 30.271 30.271 30.206 27.246 26.476 26.476 26.476 26.476 26.476
TII/share $0.4418 $0.3880 $0.4755 $0.4111 $0.3987 $0.4539 $0.4206 $0.4101 $0.4367 $0.3426 $0.3715 $0.3328 $0.3284
NII/share $0.1719 $0.1689 $0.2178 $0.1619 $0.1530 $0.1989 $0.1709 $0.1833 $0.2205 $0.1588 $0.1835 $0.1754 $0.1663
NAV/share $9.82 $9.65 $9.84 $9.22 $8.66 $9.05 $9.24 $9.18 $8.55 $8.49 $8.57 $7.34 $8.49
Wt Av Yield 12.7% 12.5% 12.7% 12.6% 12.6% 12.7% 12.6% 12.5% 12.5% 12.6% 12.6% 12.6% 12.7%
NII/TII ratio 38.9% 43.5% 45.8% 39.4% 38.4% 43.8% 40.6% 44.7% 50.5% 46.4% 49.4% 54.1% 51.8%
# of portfolio companies 35 36 36                  
Non-accruals at Fair Value 0.9% 0.4% 2 0.7%                
  Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q3-15 Q2-15 Q1-15 Q4-14 Q3-14 Q2-14 Q1-14
Credit Facility 43.700 63.500 79.600 95.000 89.200 103.500 89.750 118.800 95.800 87.750 62.950 61.701
Secured Borrowings 5.096 5.096 5.096 5.096 5.096 5.096 5.096 5.096 5.096 5.096 5.096 5.000
Preferred stock 134.639 134.549 118.683 118.465 121.650 121.650 121.650 81.400 81.400 40.000 40.000 40.000
Total Debt 183.435 203.055 203.379 218.561 215.946 230.246 216.496 205.296 182.296 132.846 108.046 106.701
Debt/share 6.060 6.7079 6.7186 7.2223 7.1338 7.6062 7.1673 7.5349 6.8853 5.0176 4.0809 4.0301
Debt/share to NAV 61.71% 69.51% 68.28% 78.33% 82.38% 84.05% 77.57% 82.08% 80.53% 59.10% 47.62% 54.91%
Interest expense .825 .953 .971 1.035 .974 1.081 1.064 1.039 1.042 .720 .738  
Preferred dividends 2.251 2.115 2.065 2.065 2.066 2.065 1.767 1.411 1.085 .712 .713  
Amort of deferred costs .546 .481 .481 .480 .485 .483 .460 .398 .404 .282 .254  
Total debt expense 3.622 3.549 3.517 3.580 3.525 3.629 3.291 2.848 2.531 1.714 1.705  
Debt expense/share 0.1196 0.1172 0.1162 0.1183 0.1164 0.1199 0.1090 0.1045 0.0956 0.0647 0.0644  
Interest expense/TII 27.08% 30.22% 24.43% 28.78% 29.21% 26.41% 25.90% 25.49% 21.89% 18.90% 17.33%  
Annualized Int exp/Debt 4.94% 6.99% 6.92% 6.55% 6.53% 6.30% 6.08% 5.55% 5.55% 5.16% 6.31%  
PWAY - Int exp/Debt 776 bps 551 bps 578 bps 605 bps 607 bps 640 bps 652 bps 695 bps 695 bps 744 bps 647 bps  

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