What Could Impact Prospect Capital’s Valuations?

Lower valuations

Prospect Capital’s (PSEC) PE (price-to-earnings ratio) is 8.32x on a next-12-month basis, which reflects a lower valuation than the peer average of 9.35x.

The company’s competitors Ares Capital (ARCC), FS Investment (FSIC), and Apollo Investment (AINV) have next-12-month PEs of 10.07x, 9.79x, and 8.20x, respectively.

What Could Impact Prospect Capital’s Valuations?

Prospect Capital saw a fall in net investment income per share in fiscal 3Q18 compared to fiscal 2Q18 and fiscal 3Q17, which could be a primary reason for its lower valuations. Additionally, higher interest rates could increase the costs for the company, impacting its prices as well as its valuations. Hence, the company’s costs could increase after the Federal Reserve increases the interest rate.

Structured credit investments

In fiscal 3Q18, Prospect Capital’s total originations were higher than its repayments. However, its total originations fell in fiscal 3Q18 compared to fiscal 2Q18. The company had $944.8 million worth of total structured credit investments as of March 31. However, at the end of March 31, its number of investments was 43—that is, there’d been no change in the number compared to December 31, 2017.

Prospect Capital has a PE of 9.98x on a trailing-12-month basis, and its peers (XLF) Ares Capital, FS Investment, and Apollo Investment have PEs of 8.90x, 10.65x, and 16.16x, respectively, on a trailing-12-month basis.