Net asset value falls
Prospect Capital (PSEC) reported its fiscal 3Q16 earnings on May 10, 2016. It missed Wall Street analysts’ consensus net income estimate of $0.26 per share, with a posted net income of $0.25 per share. The stock remained flat in after-market hours.
The company’s net asset value fell from $9.65 per share on March 31, 2015, to $9.61 per share on March 31, 2016. This was mainly due to unrealized depreciation based on volatility in capital markets rather than fundamental credit issues.
Prospect Capital’s net investment income rose to $87.6 million in fiscal 3Q16 compared to $87.4 million in fiscal 3Q15. Compared to the previous quarter, its net investment income fell by $12 million. The company reported total investment income of $189 million in fiscal 3Q16 compared to $191 million in the prior year’s quarter.
Here’s how some of Prospect Capital’s peers in investment management fared with their respective quarterly earnings:
- Ares Capital (ARCC) missed estimates.
- BlackRock Capital Investment (BKCC) missed estimates.
- Blackstone (BX) missed estimates.
- American Capital (ACAS) beat estimates.
Together, these companies form 1.4% of the Financial Select Sector SPDR ETF (XLF).
Prospect Capital is a financial services company that lends to and invests in middle-market, privately held companies. The company acts as a closed-end fund and is regulated as a business development company. It provides capital to companies in the form of senior and subordinated debt and equity. This capital is then used for acquisitions, divestitures, growth, development, and recapitalizations.
Prospect works with financial sponsors and management teams to identify investments with historical cash flows, asset collateral, or contracted pro forma cash flows. Prospect Capital investments are made based on one of nine origination strategies:
- lending in private equity–sponsored transactions
- lending directly to companies not owned by private equity firms
- control investments in corporate operating companies
- control investments in financial companies
- investments in structured credit
- real estate investments
- investments in syndicated debt
- aircraft leasing
- online lending
In the following parts of this series, we’ll discuss Prospect’s yield, deployments, portfolio strategy, expected earnings, balance sheet strength, and valuations.