Home Stock Market Photo voltaic Senior Capital: 9% Coated Yield With A 14% Low cost...

Photo voltaic Senior Capital: 9% Coated Yield With A 14% Low cost To NAV (NASDAQ:SUNS)


The BDC sector stays a problem from a shareholder return standpoint. As seen beneath, the VanEck Vectors BDC Earnings ETF (BIZD) has largely underperformed the S&P 500 (SPY), with a 29% decline because the begin of the yr.

(Supply: YCharts)

Whereas this will entice cut price hunters to begin shopping for, I consider one ought to restrict picks to high-quality BDCs with an ample margin of security. On this article, I’m centered on Photo voltaic Senior Capital (SUNS), which I consider is one such BDC. I consider what makes it engaging at the moment valuation; so let’s get began.

A Look Into Photo voltaic Senior Capital

Photo voltaic Senior Capital is externally-managed by Photo voltaic Capital Companions and invests primarily in senior secured loans of personal, middle-market firms. Its mortgage portfolio at the moment consists of 215 firms throughout 115 industries, with a portfolio truthful worth of $532M. I like the truth that 99% of the funding portfolio is invested in first-lien loans, which helps to protect in opposition to losses, as it’s the final tranche of debt {that a} borrower would default in opposition to. It additionally helps to make sure recoverability within the occasion of a default.

As with most BDCs, the present working atmosphere has been difficult for Photo voltaic Senior Capital. This was evidenced by the 11% QoQ drop in NAV/share that the corporate noticed in Q1. I’m inspired, nonetheless, to see that NAV/share recovered considerably in Q2, with a 6.6% sequential enhance.

Whereas the latest quarter’s outcomes level to an upswing, I additionally need to see what Photo voltaic’s long-term monitor document has been. As seen beneath, I pulled Photo voltaic’s NAV/share at This fall of every yr since 2015, together with that of Q1 and Q2 of this yr. From the seems of it, it seems that administration has finished an ample job of roughly preserving a gradual NAV through the years, earlier than the pandemic set in.

(Supply: Created by writer primarily based on firm press releases)

As well as, administration has finished job of preserving the online funding earnings over this similar time interval. From This fall ’15 to This fall ’19, the quarterly NII has been $0.35 for each quarter except for two, through which it was $0.36 and $0.37.

Trying ahead to Q3 outcomes, I anticipate to see regular NII efficiency. That is supported by the resilient portfolio, through which 100% of the investments have been performing on the finish of Q2, and the truth that 82% of the loans have LIBOR flooring, thereby capping the draw back. As well as, I like the truth that mission-critical sectors of healthcare suppliers and insurance coverage brokers characterize a number of the largest trade exposures that Photo voltaic has.

Moreover, the overwhelming majority of the portfolio firms are deemed by administration as important companies, in non-cyclical sectors. Lastly, the life sciences section of the portfolio supplies extra stability, as administration famous on the last conference call:

“Now, let me flip to Life Science lending. Total, our portfolio is essentially insulated from short-term market and financial dislocations given the long-dated fairness funding intervals and product improvement cycles. The influence of COVID has had a de-minimis influence on the underlying Life Science portfolio. 100% of our loans are performing and we proceed to anticipate to incur no losses on this section.

As a reminder, we now have by no means realized a loss in our Life Science investments. At the moment, 100% of our Life Science portfolio have greater than 12 months of money runway. That is largely a results of our funding give attention to public and enterprise capital backed late-stage pharmaceutical and medical gadget firms which are near or coming into commercialization.”

In the meantime, Photo voltaic maintains loads of liquidity, with $135M of money and money equivalents. The online debt to fairness ratio is simply 0.68 with no near-term debt maturities. I see this as being an enormous plus, because it permits Photo voltaic to make opportune investments and benefit from market dislocations wherever they could come up.

I discover the shares to be attractively valued on the present worth of $13.37, which represents a 14% low cost to NAV. This compares favorably to the 8% premium to NAV that the shares traded at on 12/31/19, primarily based on the then worth of $17.60 and the then NAV/share of $16.31.

As well as, the 9% dividend yield seems to be engaging within the present low-yield atmosphere, and is at the moment lined by NII, on the newly set dividend fee of $0.10 monthly.

I additionally like the truth that senior administration has vital pores and skin within the recreation, by proudly owning 6% of the frequent shares excellent. As well as, the CEO expressed confidence within the firm by making two open market purchases throughout the final two months on the common worth of $13.15, thereby growing his stake within the firm by 4%.

(Supply: Open Insider)

Analysts appear to agree that the shares are undervalued, with a consensus Robust Purchase ranking (rating of 4.7 out of 5), and a median worth goal of $15.67.

Investor Takeaway

As with most BDCs, Photo voltaic Senior Capital has seen a drop in its NAV/share and portfolio NII because of the headwinds from COVID. Nevertheless, I see the portfolio as being largely protected by the 99% senior mortgage construction, which helps to protect in opposition to losses, as it’s the final tranche of debt {that a} borrower would default in opposition to. I’m inspired to see that 100% of the mortgage portfolio was performing on the finish of Q2, and anticipate to see regular NII efficiency within the upcoming Q3 outcomes. Lastly, Photo voltaic maintains a robust stability sheet with loads of liquidity, which ought to assist it to benefit from market dislocations wherever they could come up.

I discover the shares to be attractively priced on the present worth of $13.37, which represents a 14% low cost to NAV. As well as, the 9% dividend is roofed by present NII, and seems to be engaging within the present low-yield atmosphere. For the explanations acknowledged above, I see upside potential for the shares.

Thanks for studying! When you loved this piece, then please click on “Comply with” subsequent to my title on the high to obtain my future articles. All the most effective.

Disclosure: I/we now have no positions in any shares talked about, and no plans to provoke any positions throughout the subsequent 72 hours. I wrote this text myself, and it expresses my very own opinions. I’m not receiving compensation for it (aside from from Looking for Alpha). I’ve no enterprise relationship with any firm whose inventory is talked about on this article.

Further disclosure: This text is for informational functions and doesn’t represent as monetary recommendation. Readers are inspired and anticipated to carry out due diligence and draw their very own conclusions prior to creating any funding selections.


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