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Ares Capital’s Premium Valuations amid Declining Net Asset Value

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Higher price-to-book ratio

Ares Capital Corporation (ARCC) posted net investment income of $124.0 million in 2Q17 compared to net investment income of $105.0 million posted in 2Q16. Ares Capital’s price-to-book ratio stood at 1.0x, which is higher than its competitors’ average price-to-book ratio of 0.88x. 

Other investment management companies (XLF) have the following price-to-book ratios:

  • BlackRock Capital Investment (BKCC): 0.85x
  • Prospect Capital (PSEC): 0.81x
  • Apollo Investment (AINV): 0.97x

In 2Q17, Ares Capital Corporation reported net realized gains of $106 million compared to $31 million in 2Q16. The company purchased a $1.6 billion loan portfolio from the Senior Secured Loan Fund, LLC (or SSLP), which would benefit Ares Capital in terms of its earnings. 

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In 2Q17, Ares Capital witnessed a decline in its net asset value, which stood at $16.54 per share compared to $16.62 per share in 2Q16. Keeping in view the competition prevailing in the market, the company’s management has a positive view on the company’s competitive advantages and expects to make attractive investments.

Price-to-sales ratio

Ares Capital Corporation (ARCC) currently has a price-to-sales ratio of ~4.6x. Its peers have the following price-to-sales ratios:

  • BlackRock Capital Investment (BKCC): ~15.9x
  • Prospect Capital (PSEC): ~3.6x
  • Apollo Investment (AINV): ~6.4x
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