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ARCC Posts Mostly Great Q4-18 With Another Div Raise

|About: Ares Capital (ARCC)

The bad news in the Ares Capital Corporation (ARCC) earnings release --

valuation adjustments caused a write-down on investments of $50 million. But that caused a negative capital gains fee charged to investors. And those negative fees raised the NII. Thus NII was a very large beat. Almost everything else was good news.

"On February 12, 2019, Ares Capital declared a first quarter 2019 dividend of $0.40 per share (that is a second penny raise) payable on March 29, 2019 to shareholders of record on March 15, 2019.

On February 12, 2019, Ares Capital declared an additional $0.08 per share of dividends, to be distributed in quarterly payments of $0.02 per share during 2019."

The Yahoo projections:

Earnings Estimate Current Qtr. (Dec 2018) Next Qtr. (Mar 2019) Current Year (2018) Next Year (2019)
No. of Analysts 16 16 13 16
Avg. Estimate 0.41 0.41 1.64 1.7
Low Estimate 0.39 0.38 1.62 1.62
High Estimate 0.44 0.43 1.66 1.77
Year Ago EPS 0.38 0.39 1.39 1.64

No. of Analysts 10 10 11 12
Avg. Estimate 323.44M 327.16M 1.32B 1.38B
Low Estimate 318.47M 318.10M 1.30B 1.29B
High Estimate 336.49M 341.62M 1.33B 1.47B
Year Ago Sales 307.00M 317.00M 1.16B 1.32B
Sales Growth (year/est) 5.40% 3.20% 13.40% 4.60%

Actual TII was $345 million compared to the projected $323.44 million. That 'sounds' like a big beat. But . . . The Q3-18 TII was $342 million.

Actual NII was $0.4765/share compared to the projected $0.41. Core NII was $0.45/share -- which (basically) was the NII of $0.47 minus the $0.02 gained from negative fees.

My spreadsheets:

Q4-18 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
Realized & Unrealized Gains -50 24 92 98 92 -14 54 24 -63 -27.445 52.136 37.622 -125.818 -13.618 38.019 -17.262 25.202 72.449 50.840 4.728
Realized & Unrealized Gains/share -$0.1174 $0.0563 $0.2150 $0.2300 $0.2160 -$0.0323 $0.1268 $0.0563 -$0.2000 -$0.0874 0.1661 0.1197 -0.4001 -0.0433 0.1209 -0.0549 0.0802 0.2306 0.1702 0.0159
Cap Gain Incentive Expense -10 5 18 20 18 -3 10 16 -13 -5.491 10.427 3.762 -27.555 -2.628 7.682 -4.220 5.277 13.087 10.168 935
Cap Gain Expense/share -$0.0235 $0.0118 $0.0421 $0.0469 $0.0422 -0.0069 0.0235 0.0376 -0.04 -0.0175 0.0332 .0120 - .0876 -.0084 .0244 -.0139 .0168 .0417 .0340 .0031

Ares Capital Q4-18 Q3-18 Q2-18 Q1-18 Q4-17 Q3-17 Q2-17 Q1-17 Q4-16 Q3-16 Q2-2016 Q1-2016 Q4-2015 Q3-2015 Q2-2015 Q1-2015 Q4-2014 Q3-2014 Q2-2014 Q1-2014
Total investment income 345 342 333 317 307 294 284 275 261 258.670 245.262 248.050 261.676 260.948 249.479 253.247 270.917 253.396 224.927 239.719
Net investment income 203 185 162 149 140 153 124 94 146 137.696 105.264 117.926 147.103 130.477 108.503 121.677 128.185 105.290 91.991 112.336
Investments @ fair value 12.417 11.200 11.527 12.693 11.841 11.456 11.498 11.407 8.820 8.805 8.900 9.072 9.055 8.692 8.573 8.482 9.028 8.784 8.068 7.800
Wt Av Share Count 426 426 428 426 426 426 426 426 314 313.954 313.954 314.293 314.450 314.469 314.469 314.108 314.108 314.108 298.583 298.270
TII/share $0.8099 $0.8028 $0.7780 $0.7441 $0.7207 $0.6901 $0.6667 $0.6455 $0.8312 $0.8239 $0.7812 $0.7892 $0.8322 $0.8298 $0.7933 $0.8062 $0.8625 $0.8067 $0.7533 $0.8037
NII/share $0.4765 $0.4343 $0.3785 $0.3498 $0.3286 $0.3592 $0.2911 $0.2206 $0.4650 $0.4386 $0.3353 $0.3752 $0.4678 $0.4149 $0.3450 $0.3873 $0.4081 $0.3352 $0.3081 $0.3766
Core NII/share $0.45 $0.45 $0.39 $0.39 $0.38 $0.36 $0.34 $0.32 $0.42 $0.43 $0.39 $0.37 $0.40 $0.41 $0.37 $0.37 $0.42 $0.40 $0.34 $0.38
Dividend/share $0.40 $0.39 $0.39 $0.38 $0.38 $0.38 $0.38 $0.38 $0.38 $0.38 $0.38 $0.38 $0.38 $0.38 $0.38 $0.43 $0.38 $0.38 $0.38 $0.43
NAV/share $17.12 $17.16 $17.05 $16.84 $16.65 $16.49 $16.54 $16.50 $16.45 $16.59 $16.62 $16.50 $16.46 $16.79 $16.80 $16.71 $16.82 $16.71 $16.52 $16.42
Wt Av Yield Income Securities @ FV 10.3% 10.3% 10.5% 10.1% 9.8% 9.6% 9.4% 9.3% 9.3% 9.7% 9.8% 10.1% 10.1% 10.4% 10.6% 10.5% 10.1% 9.9% 10.0% 10.2%
Wt Av Yield Total Portfolio @ FV 9.3% 9.0% 9.0% 8.9% 8.7% 8.5% 8.2% 8.1% 8.3% 8.7% 8.9% 9.3% 9.1% 9.3% 9.6% 9.5% 9.1% 8.9% 9.0% 9.3%
TII/Investments or Income Yield 11.11% 12.21% 11.55% 9.99% 10.37% 10.26% 9.88% 9.64% 11.84% 11.75% 11.02% 10.94% 11.56% 12.01% 11.64% 11.94% 12.00% 11.54% 11.15% 12.29%
NII/TII 58.84% 54.09% 48.6% 47.0% 45.6% 52.0% 43.7% 34.2% 55.9% 53.2% 42.9% 47.5% 56.2% 51.0% 43.5% 48.0% 47.3% 41.6% 40.9% 46.9%
The fee waiver was $10 million in Q3-18; the same as in Q2-18, Q1-18 Q4-17, Q3-17 and Q2-17
On 7-21-14 ARCC had a secondary offering of 13.5 million shares with the option to purchase 2 million more when shares were selling at $17.40
In Q2-16 NII was decremented by two cents per share from expenses related to the pending acquisition of ACAS - Q3 decrement was 0.8 cents.
Reported and actual numbers should come with an asterisk. Example: Q2-16 NII had a more than three cent/share subtraction for cap gain fees
Due to prior period loses, management may not earn or keep incentive fee dollars - but it is still subtracted from NII
Q4-18 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 5,214 4,546 4,542 5,118 4,854 4,640 4,838 4,585 3,874 3,720.916 3,785.354 3,984.812 4,113.935 3,653.304 3,582.199 3,429.164 3,924.482 3,679.201 3,357.415 3,058.693
Debt/share 12.24 10.67 10.66 12.06 11.39 10.89 11.36 10.76 12.33 11.8518 12.0570 12.6787 13.0829 11.6174 11.3913 10.9171 12.4941 11.7132 11.2445 10.2548
Debt/share to NAV 71.5% 62.2% 62.5% 71.3% 68.4% 66.1% 68.7% 65.2% 75.0% 71.34% 72.54% 76.84% 79.48% 69.19% 67.81% 65.33% 74.28% 70.10% 68.06% 62.45%
Interest expense 60 59 61 60 59 56 55 55 47 43.300 45.334 50.243 55.353 56.618 56.421 58.575 56.279 54.096 53.151 52.493
Interest expense/share 0.1408 0.1385 0.1425 0.1408 0.1385 0.1314 0.13 0.13 0.15 0.1379 0.1444 0.1599 0.1760 0.1800 0.1794 0.1865 0.1792 0.1722 0.1780 0.1760
Interest expense/TII 17.4% 13.8% 18.3% 18.9% 19.2% 19.0% 19.4% 20.0% 18.0% 16.74% 18.48% 20.26% 21.15% 22.69% 22.62% 23.13% 20.77% 21.35% 26.36% 21.90%
Annualized Int exp/Debt 4.60% 5.19% 5.37% 4.69% 4.86% 4.83% 4.55% 4.80% 4.58% 4.65% 4.79% 5.04% 5.38% 6.20% 6.30% 6.83% 5.74% 5.88% 6.33% 6.86%
PWAY - Int exp/Debt 570 bps 511 bps 513 bps 541 bps 494 bps 477 bps 495 bps 450 bps 472 bps 515 bps 511 bps 506 bps 492 bps 420 bps 430 bps 367 bps 436 bps 402 bps 367 bps 334 bps
Stated Av Interest Exp 4.16% 4.16% 4.14% 4.12% 4.05% 3.941% 4.52% 4.164% 4.184% 3.922% 3.998% 4.425% 5.00%

A NAV fall is a bad thing - and the NII beat was directly caused by the NAV fall. I strongly expect that the size of the NII beat was so big - the NAV fall will be ignored. The dividend news is a big thing.

Sizing the news -- I would not be surprised by a jump in ARCC that will cause ARCC to still yield (including the special div in the calculation) around 9.5%. It if were 'only' an increase to a 10% yield - the resulting price would be (4 time 42 or $1.68 at a price to create a 10% yield) $16.80. At a 9.5% yield the price would be (1.68 divided by .095) $17.68. ARCC closed yesterday at $16.60.

 

Disclosure: I am/we are long ARCC.