BDC Weekly Review: Market Hates Income Misses

seekingalpha05-11

We take a look at the action in business development companies through the first week of May and highlight some of the key themes we are watching.BDCs were slightly down for the week, underperforming ...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nBDC Weekly Review: Market Hates Income Misses\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-05-11 20:06 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4692185-bdc-weekly-review-market-hates-income-misses-glad-arcc-stocks><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>We take a look at the action in business development companies through the first week of May and highlight some of the key themes we are watching.BDCs were slightly down for the week, underperforming ...</p>\n\n<a href=\"https://seekingalpha.com/article/4692185-bdc-weekly-review-market-hates-income-misses-glad-arcc-stocks\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"ARCC","symbol_name":"阿瑞斯","start_time":0,"source_url":"https://seekingalpha.com/article/4692185-bdc-weekly-review-market-hates-income-misses-glad-arcc-stocks","article_id":"2434824119","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1726514483/image_1726514483.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2434824119","pubTimestamp":1715429195,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"We take a look at the action in business development companies through the first week of May and highlight some of the key themes we are watching.BDCs were slightly down for the week, underperforming ","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"ARCC":"阿瑞斯","BK4585":"ETF&股票定投概念","BK4588":"碎股","BK4135":"资产管理与托管银行","GLAD":"格拉德斯通资本","LU2125154778.USD":"ALLSPRING GLOBAL EQUITY ENHANCED INCOME \"A\" (USD) INC","BDC":"百通公司","LU2360032135.SGD":"ALLSPRING GLOBAL EQUITY ENHANCED INCOME \"A\" (SGDHDG) INC","LU2125154935.USD":"ALLSPRING (LUX) WF GLOBAL EQUITY ENHANCED INCOME \"I\" (USD) INC","BK4148":"电子元件"},"translate_title":"BDC周报：市场讨厌收入失误","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"ARCC":1,"BDC":1,"GLAD":1},"content_text":"We take a look at the action in business development companies through the first week of May and highlight some of the key themes we are watching.BDCs were slightly down for the week, underperforming the broader income space.An interesting pattern of net income misses followed by drops in stock prices has been observed during this earnings cycle.We highlight GLAD and ARCC earnings.   J Studios Welcome to another installment of our BDC Market Weekly Review, where we discuss market activity in the Business Development Company (\"BDC\") sector from both the bottom-up - highlighting individual news and events - as well as the top-down - providing an overview of the broader market. We also try to add some historical context as well as relevant themes that look to be driving the market or that investors ought to be mindful of. This update covers the period through the first week of May. Market Action BDCs were down slightly over the week, underperforming the broader income space. The news items that drove the sector were the initial earnings releases which were mostly decent as well as Powell's commentary that the Fed was unlikely to push rates any higher.   Systematic Income BDCs delivered a total return of around 1% in April - a very respectable outcome.   Systematic Income BDC valuations are trading not far off their recent peaks. Earnings numbers have so far been fairly strong while net income levels remain high, both of which have supported valuations.   Systematic Income Market Themes An interesting pattern of this earnings cycle has caught our eye. We have seen a few net income misses, followed by a drop in the stock over a day or two despite an otherwise strong earnings report and a stable BDC market. Four headlines below were particularly notable which we discuss here. FDUS Q1 Non-GAAP EPS of $0.59 misses by $0.01. FDUS fell post announcement, tried to rally back but the attempt fizzled out and it moved lower.   SA Ares Capital posts slight Q1 earnings miss as NAV, investing activity rises. ARCC rose initially after the report but couldn't sustain the rally and ended up falling below the level of its pre-announcement price.   SA Gladstone Capital NII of $0.25, Total investment income of $24M misses by $0.15M. GLAD fell right after the release and has recovered only some of the lost ground.   SA TSLX Q1 Non-GAAP EPS of $0.52 misses by $0.07. A sizable drop by TSLX shortly after its press release without much of a recovery.   SA Three factors are particularly relevant for this dynamic. One, the earnings period has only just begun so four cases is a sizable percentage of the overall sector that has reported so far. Two, the NAVs of ARCC, GLAD and TSLX rose over the quarter - by 0.8% for TSLX, by 1.5% for ARCC and 3% for GLAD; FDUS NAV was flat. In other words, the drops in price for these stocks are actually understated relative to their NAVs. If we think about the moves in valuation terms, ARCC sold off 3%, TSLX by 4% and GLAD sold off by 5.5% - very sizable moves in a period when the broader sector was essentially flat. To paraphrase an economics tenet that \"productivity is not everything but in the long-run it's nearly everything\" - \"for BDCs the NAV is not everything but in the long-run it's nearly everything\". In other words, long-term BDC performance is largely a function of the NAV. We can't think of a high-performing BDC whose NAV moves consistently lower over time. Typically, whatever income advantage a BDC has, it cannot make up for sub-par NAV performance. This odd trading behavior has the feel of bot trading which looks for phrases like \"miss\" in headlines and trades quickly before other investors can process the news. This might work for bots but it's not a good approach for income investors. In fact, adding BDCs whose price drops on a slight income miss but an NAV gain is a good contrarian trade and an opportunity for income investors with an outlook longer than a day. Market Commentary Gladstone Capital (GLAD) put up good numbers. Net income fell slightly and the NAV rose 3% due to net unrealized appreciation. There was a net realized gain as well. Non-accruals rose to 1.8% from 0.4% on a fair-value basis - a bit above the sector average. The two non-accruals are marked at 32% and 77% so quite a bit has been written down already. The company is fairly optimistic about the higher-mark noon-accrual position which makes high-end wet suits and have brought in external help to keep it afloat, so to speak.   Systematic Income BDC Tool GLAD numbers are a bit all over the place because of the stock split. For example, the next dividend (i.e. for April - June) doubled because of a doubling of the number of shares, however metrics like net income are still reported as of the old number of shares because the split happened after the end of the quarter. Overall, it was a good result. Ares Capital Corp (ARCC) posted good numbers as well. Net income was down slightly but flat to Q3. The NAV rose 1.5% largely due to unrealized appreciation. There was a small net realized loss. Non-accruals ticked higher to 0.7% - fairly low by sector standards. We are seeing a similar up-in-quality bias as with a few other BDCs like OCSL, with the first-lien loan allocation growing steadily over the last couple of years. The pipeline is primarily first-lien - well above the company’s overall portfolio level.   ARCC  Based on Q1, ARCC closed the week at a valuation of around 106% which is slightly below the sector average level but above the median. This is the pattern we have tended to see for the stock - above-average performance and middling valuation. ARCC remains in both Core and High Income Portfolios.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.5","shortVersion":"4.22.5","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2434824119"}