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SLRC Reports Good Enough Q3-18

|About: Solar Capital (SLRC)

The projections from Yahoo Finance for Solar Capital Ltd. (SLRC)

Earnings Estimate Current Qtr. (Dec 2018) Next Qtr. (Mar 2019) Current Year (2018) Next Year (2019)
No. of Analysts 7 7 7 7
Avg. Estimate 0.45 0.46 1.81 1.86
Low Estimate 0.43 0.45 1.78 1.83
High Estimate 0.47 0.47 1.85 1.92
Year Ago EPS 0.44 0.45 1.62 1.81
Earnings History 12/30/2017 3/30/2018 6/29/2018 9/29/2018
EPS Est. 0.42 0.45 0.46 0.45
EPS Actual 0.44 0.45 0.45 0.42
Difference 0.02 0 -0.01 -0.03
Surprise % 4.80% 0.00% -2.20% -6.70%
Revenue Estimate Current Qtr. (Dec 2018) Next Qtr. (Mar 2019) Current Year (2018) Next Year (2019)
No. of Analysts 6 4 7 6
Avg. Estimate 40.56M 41.65M 157.47M 171.88M
Low Estimate 39.06M 39.91M 154.00M 164.81M
High Estimate 42.33M 43.00M 160.36M 177.00M
Year Ago Sales 38.91M 38.96M 143.34M 157.47M
Sales Growth (year/est) 4.20% 6.90% 9.90% 9.20%

The NII projection was $0.45 compared to (my calculation) $0.4358

TII was down from Q1. SLRC fails to show the volatile lines of accelerated OID and prepayment fees - which would help in knowing the why for the fall. TII fell while the PWAY increased - which is the opposite of what one would expect.

My spreadsheets:

Q3-18 Q2-18 Q1-18 Q4-17 Q3-17 Q2-17 Q1-17 Q4-16 Q3-16 Q2-2016 Q1-2016 Q4-15 Q3-15 Q2-15 Q1-15 Q4-14 Q3-14 Q2-14 Q1-14 Q4-13 Q3-13 Q2-13 Q1-13
Realized & Unrealized Gains -0.286 0.625 1.191 -1.300 -0.152 2.704 0.828 0.195 8.615 15.642 11.262 -31.200 -16.903 1.285 -3.491 -4.478 -11.058 0.952 -3.674 x 7.985 -19.269 10.287
Realized & Unrealized Gains/share -0.0068 0.0148 0.0282 -0.0307 -0.0036 0.0640 0.0196 0.0046 0.2039 .3702 .2665 -.7347 -.3980 .0303 -.0822 -.1054 -.2604 .0223 -.0835 x x x x

This was an atypical quarter when gains were negative - but the degree to which they were negative was very small.

Solar Capital Q3-18 Q2-18 Q1-18 Q4-17 Q3-17 Q2-17 Q1-17 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
Interest income 22.743 25.337 24.466 23.419 21.758 21.907 22.152 25.409 29.505 31.179 24.128 31.497 21.705 19.513 17.023 24.263 19.914 20.110 24.142
Dividend income 14.267 12.832 14.369 15.421 13.731 11.682 11.688 11.056 9.852 9.866 9.886 31.497 8.401 8.461 8.477 8.537 8.391 7.889 8.416
Other income 0.132 1.019 .125 .071 .658 .299 .552 .175 .440 .324 .019 31.497 .339 .004 .130 .145 .053 .005 .072
Total investment income 37.142 39.188 38.960 38.911 36.147 33.888 34.392 36.639 39.798 41.369 34.033 31.497 30.445 27.978 25.630 32.945 28.358 28.004 32.630 35.364
Net investment income 18.416 19.165 18.857 18.639 17.315 16.079 16.330 17.649 17.004 19.533 16.915 17.000 16.989 15.991 14.390 16.792 16.360 16.132 17.424 18.532
Investments @ fair value 1.411 1.403 1.472 1.461 1.392 1.219 1.323 1.305 1.362 1.483 1.338 1.313 1.207 1.172 1.043 1.021 1.134 0.984 0.972 1.088
Wt Av Share Count 42.261 42.261 42.261 42.260 42.261 42.260 42.249 42.249 42.249 42.248 42.248 42.465 42.465 42.465 42.465 42.888 42.465 42.661 43.983 44.244
TII/share $0.8789 $0.9273 $0.9219 $0.9208 $0.8553 $0.8019 $0.8140 $0.8635 $0.9420 $0.9792 $0.8055 $0.7417 $0.7169 $0.6588 $0.6036 $0.7682 $0.6678 $0.6564 $0.7419 $0.7993
NII/share $0.4358 $0.4535 $0.4462 $0.4411 $0.4097 $0.3805 $0.3865 $0.4177 $0.4025 $0.4623 $0.4004 $0.4003 $0.4001 $0.3766 $0.3389 $0.3915 $0.3853 $0.3781 $0.3962 $0.4189
NAV/share $21.95 $21.93 $21.87 $21.81 $21.80 $21.79 $21.75 $21.74 $21.72 $21.51 $21.08 $20.79 $21.52 $21.92 $21.91 $22.05 $22.34 $22.44 $22.43 $22.50
Wt Av Yield 11.2% 10.9% 10.8% 10.1% 10.2% 10.1% 10.2% 10.0% 10.0% 10.2% 10.3% 10.5% 10.1% 9.9% 10.0% 9.9% 10.3% 10.5% 10.9% 11.3%
NII/TII ratio 49.6% 48.9% 48.4% 47.9% 47.9% 47.4% 47.5% 48.2% 42.7% 47.2% 49.7% 55.8% 55.8% 57.2% 56.1% 51.0% 57.7% 57.6% 53.9% 52.5%
PIK Income YTD 784 763 740 250 173 173 173 582 243 53 0 0 0 0 0 3303 3169 2252 0
PIK Income Qrtr 21 23 740 77 0 0 173 190 190 53 0 0 0 0 0 134 917 2252 0
PIK/TII ratio 0.05% 0.06% 1.90% 0.2% 0% 0% 0.5% 0.5% 0.5% 0.1% 0.4% 3.3% 8.0%
Portfolio companies 230 230 238 57 61 63 66 74 56
Port comp + Crystal 93 88 86 92 95 100 81
Port comp leverage 5.0x 5.0x 4.9x 5.2x 5.2x 5.2x 5.2x 5.0x 5.0x
Port comp int coverage 2.25x 2.3x 2.5x 2.5x 2.7x 2.7x 2.7x 2.75x 3.0x 2.8x 2.7x

Portfolio company interest coverage ratios are falling like a rock - but (at least) they are falling from an excellent starting point. SUNS tells us portfolio cumulative revenue and EBITDA numbers. (Next to everyone else does not.) So I am left to wonder if the climbing PWAY is the direct cause of declining credit metrics.

Solar Capital Q3-18 Q2-18 Q1-18 Q4-17 Q3-17 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q3-15 Q2-15 Q1-15 Q4-14 Q3-14 Q2-14 Q1-14
Debt 486.226 471.658 543.463 541.600 472.196 314.073 372.141 387.314 439.787 569.959 444.432 432.900 298.400 225.000 225.000 225.000 225.000 225.000 225.000
Debt/share 11.5053 11.1606 12.8597 12.8159 11.1733 7.4319 8.8083 9.1674 10.4094 13.4908 10.5196 10.1943 7.0270 5.2985 5.2985 5.2462 5.2985 5.2741 5.1156
Debt/share to NAV 52.42% 50.89% 58.80% 58.76% 51.25% 34.11% 40.50% 42.17% 47.92% 62.72% 49.90% 49.03% 32.65% 24.17% 24.18% 23.79% 23.72% 23.50% 22.81%
Interest expense 5.521 6.092 5.909 5.692 5.348 4.957 5.669 5.488 8.519 5.543 5.021 4.493 3.875 3.629 3.601 3.605 3.630 3.621 3.592
Interest expense/share 0.1306 0.1442 0.1398 0.1346 0.1265 0.1173 0.1342 0.1289 0.2016 0.1312 0.1188 0.1058 0.0913 0.0855 0.0848 0.0841 0.0855 0.0849 0.0817
Interest expense/TII 14.86% 15.54% 15.17% 14.63% 14.79% 14.63% 16.48% 14.98% 21.41% 13.40% 14.75% 14.26% 12.73% 12.97% 14.05% 10.94% 12.80% 12.93% 11.01%
Annualized Int exp/Debt 4.54% 5.17% 4.35% 3.84% 4.53% 6.31% 6.09% 5.67% 7.74% 3.89% 4.52% 4.15% 5.19% 6.45% 6.40% 6.41% 6.45% 6.44% 6.39%
PWAY - Int exp/Debt 666 bps 573 bps 585 bps 626 bps 567 bps 379 bps 411 bps 433 bps x 631 bps 578 bps 635 bps 491 bps 345 bps 360 bps 349 bps 385 bps 406 bps 451 bps

SLRC's interest expense is falling (good news). The interest expense to TII ratio is small and getting smaller (good news). The cost of debt is shrinking (good news).

NAV increased and NII covered the dividend. For the average BDC - those two events would make an excellent quarter. But for a BDC with a lower than average yield - good news was already priced in. In sum - the quarter was 'good enough'.

Disclosure: I am/we are long SLRC.