BlackRock Capital Investment (BKCC) is expected to post $0.26 EPS (earnings per share) in the March quarter, which would mean 5% growth to $1.00 EPS for the year. The growth will be primarily backed by higher originations and thus a revenue estimate of $147 million, a growth of 11% on a year-over-year basis. The company is well positioned for sustainable growth due to lower leverage and deployment of funds in companies with a strong credit profile.
By comparison, Ares Capital (ARCC) is expected to post $0.39 EPS in the March quarter and $1.59 EPS in fiscal 2016. Ares Capital is expected to improve its yields by investing in the second lien debt of companies with strong earnings profiles. The company is also focusing on joint ventures in order to boost its originations.
In the end, closed-ended funds (PEX) will be tested on a quality of their portfolios. Companies with higher leverage and lower grade investments will see discounted valuations.
Marginal growth in 2016
Prospect Capital (PSEC) has a positive outlook for consumer credit throughout 2016 on the back of falling unemployment rates and commodity prices. The company deployed $93.2 million during the December quarter into NPRC in support of the online consumer lending initiative. Its financial services holdings are returning an annualized yield of 18%–30%, reflecting strong demand for consumer credit. It expects to continue with high dividend yields, as earnings are expected to be around $1.05 on a per-share basis in the next year.
By comparison, American Capital (ACAS) is expected to report EPS of $1.41 in 2016, a growth of 7% on a year-over-year basis. Its top-line growth is expected to be strong on higher originations and penetration into international markets. However, CIT Group (CIT) is expected to see a decline in EPS to $3.68 on the acquisition of banking assets.
In the next and final part of this series, we’ll look at further strategies that these closed-ended funds plan to employ in 2016.