THL Credit (NASDAQ:TCRD) was downgraded by investment analysts at National Securities from a “buy” rating to a “neutral” rating in a report issued on Thursday. They presently have a $10.00 price target on the investment management company’s stock, down from their previous price target of $11.00. National Securities’ target price would indicate a potential upside of 20.48% from the stock’s current price.
The analysts wrote, “• On May 8, 2017, we had upgraded THL Credit to BUY from NEUTRAL in hopes that the company’s credit issues were in the rearview mirror and that NAV would likely stabilize. We were obviously incorrect in this assessment as indicated by NAV/share dropping by 7.3% Q/Q and non-accruals increasing to 8.8% of the portfolio at cost from 5.0% the quarter prior. Although the 4Q17 results were certainly poor, we note that they were impacted by $0.04/share of a one-time expense related to ending the term loan facility and using the revolver (with the commitment also reduced) in its place going forward.
• Despite non-sponsor investments, the main source of THL’s woes, being 16% of the portfolio at fair value as of 12/31/17, this portion of the portfolio continues to cause major issues for the company’s overall portfolio. Charming Charlie was placed on non-accrual with a cost of $23.9 million and a fair value of $15.6 million, or 65% of cost. We think, given the past credit quality issues, it is likely that this will be marked down further more over the coming year.
• We respect management’s straight forward approach towards communicating with us and the rest of the Street and acknowledge the shareholder friendly actions they are taking such as waiving incentive fees for all of 2018 even if earned and having the adviser purchasing $10 million of stock, but we do not expect these measures to be enough to support a valuation of shares that would warrant a buy rating from us at this time. Additionally, we note that management was vocal about leverage constraints and the desire to diversify the portfolio more and grow the company, leading us to expect that share repurchases will not be done in the foreseeable future despite this being highly accretive at the current time given the 22% NAV discount.
• We expect the incentive fee to resume in 1Q19 and accordingly model a quarterly dividend cut to $0.23/share from $0.27/share currently. Even as the company is likely to ramp its Logan JV, we note that the runoff of higher yielding legacy investments coupled with a more first lien, sponsor focus, will likely pressure yields enough that even if there were no further credit issues the dividend will likely still need to be cut.
• We are revising our 2018 NII/share estimate to $1.24 from $1.11 due entirely to no incentive fee being earned and are rolling out our 2019 NII/share estimate of $1.00.”
A number of other equities analysts have also weighed in on the stock. Maxim Group reaffirmed a “buy” rating and issued a $11.50 target price on shares of THL Credit in a research note on Friday, November 10th. ValuEngine raised shares of THL Credit from a “hold” rating to a “buy” rating in a research note on Friday, November 10th. Keefe, Bruyette & Woods set a $9.00 target price on shares of THL Credit and gave the stock a “hold” rating in a research note on Wednesday. Finally, BidaskClub raised shares of THL Credit from a “sell” rating to a “hold” rating in a research note on Tuesday, February 13th. Eight analysts have rated the stock with a hold rating and one has assigned a buy rating to the company. THL Credit presently has an average rating of “Hold” and a consensus target price of $10.00.
THL Credit (NASDAQ:TCRD) last announced its quarterly earnings results on Tuesday, March 6th. The investment management company reported $0.27 earnings per share (EPS) for the quarter, missing the consensus estimate of $0.31 by ($0.04). THL Credit had a negative net margin of 10.04% and a positive return on equity of 10.74%. The firm had revenue of $18.58 million during the quarter, compared to analyst estimates of $19.58 million. sell-side analysts expect that THL Credit will post 1.13 earnings per share for the current fiscal year.
A number of hedge funds and other institutional investors have recently made changes to their positions in the stock. Macquarie Group Ltd. boosted its stake in THL Credit by 464.1% in the 4th quarter. Macquarie Group Ltd. now owns 62,754 shares of the investment management company’s stock worth $568,000 after purchasing an additional 51,630 shares during the period. Bramshill Investments LLC acquired a new position in THL Credit in the 4th quarter worth $515,000. Millennium Management LLC boosted its stake in THL Credit by 303.3% in the 4th quarter. Millennium Management LLC now owns 527,015 shares of the investment management company’s stock worth $4,769,000 after purchasing an additional 396,355 shares during the period. Two Sigma Securities LLC acquired a new position in THL Credit in the 4th quarter worth $146,000. Finally, Two Sigma Investments LP lifted its position in THL Credit by 26.5% during the 4th quarter. Two Sigma Investments LP now owns 151,793 shares of the investment management company’s stock worth $1,374,000 after buying an additional 31,752 shares in the last quarter. 43.80% of the stock is owned by hedge funds and other institutional investors.
About THL Credit
THL Credit, Inc is an externally managed, non-diversified closed-end management investment company. The Company’s investment objective is to generate both current income and capital appreciation, primarily through investments in privately negotiated debt and equity securities of lower middle market companies.
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