TriplePoint Venture Growth: Stay Away From This 17% Yield (Rating Downgrade)

seekingalpha10-03

TriplePoint Venture Growth offers a high dividend yield but has a risky portfolio and poor net asset value performance, making it a less attractive investment.TriplePoint focuses on tech and venture ...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2472641898?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/155095389/image_155095389.jpg","is_english":true,"pubTime":"2024-10-03 22:02","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2472641898","market":"sg","top_or_hot":-1,"title":"TriplePoint Venture Growth: Stay Away From This 17% Yield (Rating Downgrade)","media":"seekingalpha","content":"<div>\n<p>TriplePoint Venture Growth offers a high dividend yield but has a risky portfolio and poor net asset value performance, making it a less attractive investment.TriplePoint focuses on tech and venture ...</p>\n\n<a href=\"https://seekingalpha.com/article/4724799-triplepoint-venture-growth-stay-away-from-this-17-percent-yield-rating-downgrade\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>TriplePoint Venture Growth: Stay Away From This 17% Yield (Rating Downgrade)</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\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\">\nTriplePoint Venture Growth: Stay Away From This 17% Yield (Rating Downgrade)\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-10-03 22:02 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4724799-triplepoint-venture-growth-stay-away-from-this-17-percent-yield-rating-downgrade><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>TriplePoint Venture Growth offers a high dividend yield but has a risky portfolio and poor net asset value performance, making it a less attractive investment.TriplePoint focuses on tech and venture ...</p>\n\n<a href=\"https://seekingalpha.com/article/4724799-triplepoint-venture-growth-stay-away-from-this-17-percent-yield-rating-downgrade\">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":"TPVG","symbol_name":"Triplepoint Venture Growth BDC Corp","start_time":0,"source_url":"https://seekingalpha.com/article/4724799-triplepoint-venture-growth-stay-away-from-this-17-percent-yield-rating-downgrade","article_id":"2472641898","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/155095389/image_155095389.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2472641898","pubTimestamp":1727964132,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"TriplePoint Venture Growth offers a high dividend yield but has a risky portfolio and poor net asset value performance, making it a less attractive investment.TriplePoint focuses on tech and venture g","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":["rate"],"viewcount":null,"language":"en","relate_stocks":{"TPVG":"Triplepoint Venture Growth BDC Corp"},"translate_title":"TriplePoint Venture Growth：远离17%的收益率（评级下调）","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"TPVG":0.9},"content_text":"TriplePoint Venture Growth offers a high dividend yield but has a risky portfolio and poor net asset value performance, making it a less attractive investment.TriplePoint focuses on tech and venture growth stage companies, which increases potential returns but also elevates risks, especially in a high-interest-rate environment.The company's net asset value has declined consistently, and its high non-accruals and writedowns suggest ongoing financial issues within its portfolio.Despite a recent dividend cut, TPVG's yield remains high, but further reductions are possible due to declining net investment income, making the dividend potentially unsafe.   ryasick Article Thesis TriplePoint Venture Growth (NYSE:TPVG) is a very high-yielding business development company, or BDC, which I covered last year. However, its portfolio is risky and its net asset value performance is far from encouraging. I thus believe that opting for safer, more reliable dividend yields elsewhere could be an opportune move -- TPVG's very high dividend yield does not automatically make it a good investment. TriplePoint Venture Growth: Company Overview At Cash Flow Club, we like Business Development Companies. They can generate attractive income yields and, if managed well, they can also generate substantial share price appreciation above that. Of course, the latter depends on management's ability to make smart investments, while risk management is important as well. Well-managed BDCs can outperform the broad market while generating substantial income for retirees and other income-focused investors at the same time. Not all BDCs, however, are equally well-managed. Some do better while others have a harder time and may struggle with net asset value growth, especially on a per-share basis, which is what ultimately counts for investors. The following chart shows the total returns of TriplePoint Venture Growth, Main Street Capital Corp (MAIN), and Blackstone Secured Lending Fund (BXSL) since BXSL went public (TPVG and MAIN have been traded publicly before that): Data by YCharts We see that there is a huge difference between the returns generated by these BDCs. MAIN and BXSL are well-managed and operate with a low-risk portfolio, generating highly compelling returns over the last three years or so, while an investment in TPVG has not worked out well. Dividends are already included here, thus TPVG's performance on a share price basis was even worse. Many BDCs make floating-rate loans, which was advantageous over the last two years or so, as rising interest rates provided investment income growth tailwinds. Still, the performance across different BDCs was very unequal, as the chart above shows. TriplePoint Venture Growth focuses on tech companies and fast-growing venture growth stage companies with the investments it makes. This can provide ample tailwinds if TPVG makes great investment choices, as equity stakes and warrants allow for upside potential if a portfolio company turns into a large winner. On the other hand, investing in venture growth stage companies and (unprofitable) tech startups means that risks across TPVG's portfolio are higher compared to other BDCs with a more conservative approach. Unprofitable tech companies and other (presumed) high-growth venture companies did well during the pandemic, when interest rates were at an ultra-low level and access to capital was easy. However, times got tougher for these companies over the last two years or so, as interest rates rose and less money was available. Not surprisingly, that's the time frame TriplePoint Venture Growth also experienced headwinds in. After all, if funding for portfolio companies dries up, that increases risk levels across TPVG's portfolio. Some of TriplePoint Venture Growth's portfolio companies have run into trouble over the last two years or so, including Health IQ, which went bankrupt in the fall of 2022. TriplePoint Venture Growth has a portfolio worth around $715 million at fair value, with around 86% of that in loans, with the remainder being allocated to warrants and equity stakes in a total of around 100 companies. Compared to some other BDCs that only provide loans, or that have nearly 100% of loan exposure, TPVG's portfolio has a more aggressive weighing towards warrants and equity. That can be a good thing if the companies perform well, as there is more upside potential, but higher equity exposure also increases risks. TriplePoint Venture Growth is, like many other BDCs, externally managed -- as the name suggests, the manager is TriplePoint Capital, a well-known venture financier. TriplePoint Venture Growth's manager is well-paid, as the manager receives a 1.75% base management fee, with additional incentive fees above a hurdle of 8%. Oaktree Specialty Lending (OCSL), a different BDC that we covered recently, has reduced its base management fee to 1.0% this year, suggesting that TPVG's base management fee is far from modest. Portfolio Risks And Net Asset Value Performance As noted earlier, TriplePoint Venture Growth has, compared to more conservative BDCs, a riskier portfolio. This has resulted in substantial write-downs in the past, which is why net asset value declined meaningfully. And it looks like things are not clearing up yet. The following slide is from TriplePoint Venture Growth's Q2 presentation: TPVG credit development (TPVG investor presentation) We see that one company in TPVG's portfolio was upgraded, from the second-highest rating to the highest rating. Unfortunately, there were also five companies that were downgraded, including one going to the worst rating (Red). A White to Orange downgrade, which happened once during the quarter, is a downgrade by two stages, indicating things are worsening quickly for said portfolio company. Other metrics also suggest elevated risks across TriplePoint Venture Growth's portfolio, including the fact that the payment-in-kind ratio rose from a modest level of 5% to a quite high 14% over the last six quarters, suggesting a meaningful number of portfolio companies is trying to preserve cash. The following slide from the most recent investor presentation shows some important information as well: TriplePoint Venture Growth KPIs (TriplePoint Venture Growth presentation) We see that realized and unrealized losses were meaningful during each of the last five quarters, although things improved to some degree in the first half of the current year. Still, writedowns are hurting net asset value meaningfully. Non-accruals at more than 8% of fair value are quite elevated, and this ratio is also up on a sequential as well as on a year-over-year basis. More write-downs that could hurt net asset value over the coming quarters would thus not be overly surprising, I believe, as non-accruals are an indication of financial problems at portfolio companies. Net asset value per share declined during each of the last five quarters, which is far from great to see. It also can't be explained by the macro environment alone -- MAIN, for example, keeps growing its net asset value per share despite the interest rate environment. Today, with TriplePoint Venture Growth trading at $6.90 per share, shares are trading discounted to net asset value. This can be interpreted positively, as it means an undemanding valuation. On the other hand, a share price below a company's net asset value per share is a hindrance to future growth. After all, issuing new shares to fund future investments is how many BDCs grow -- this strategy is dilutive, however, if shares are issued below net asset value. In its presentation, TPVG prides itself in only having issued equity above net asset value in the past -- which is accretive to NAV per share -- but this isn't possible any longer unless TPVG's share price rises substantially. TriplePoint Venture Growth's growth potential, and the BDC's ability to issue equity to pay down debt, is thus limited in the foreseeable future, or only possible in a way that dilutes shareholders, which wouldn't be great. How Good Is This Yield? TriplePoint Venture Growth has just reduced its dividend by one-quarter, but even at the new level of $0.30 per share per quarter, the yield is very high, standing at 17% today. But chasing yield is not a great strategy if the dividend isn't safe, and that may be the case here. While the new dividend is safer than the old one, the recent net asset value and writedowns declines could result in further dividend reductions down the road. Net investment income per share has been dropping fast, declining from $0.53 per quarter one year ago to just $0.33 during the most recent quarter. While this is slightly higher than the current dividend, the net interest income trend we have seen over the last year indicates that net interest income per share could be even lower in the coming quarters. With net investment income declining by a hefty $0.08 per share between Q1 and Q2, I wouldn't bet on net investment income per share being high enough to cover the dividend in the coming quarters. It is possible that management can reverse the negative NII per share trend, but far from guaranteed, which is why I do not believe that TPVG's dividend can be called safe today.  If things work out well for TriplePoint Venture Growth, the high current dividend and low share price could result in substantial total returns going forward. However, if things do not go well, we could see further NAV per share erosion and further dividend cuts. For me, that's a reason to stay on the sidelines now -- I prefer lower-risk BDCs such as BXSL in the current environment.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"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":"4.29.1","shortVersion":"4.29.1","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/2472641898"}