Hercules Capital, Inc.’s HTGC third-quarter 2017 net investment income of 29 cents per share was in line with the Zacks Consensus Estimate. However, the figure declined 9.4% from the year-ago quarter.
Results reflected higher revenues, growth in investment portfolio and a rise in net asset value. However, increase in operating expenses was an undermining factor.
Distributional Net Operating Income for the quarter came in at $25.8 million or 31 cents per share compared with $25.2 million or 34 cents per share in the prior-year quarter.
Total Investment Income Improves, Expenses Rise
Total investment income in the reported quarter was $45.9 million, up 1.7% from the year-ago period. The increase was mainly driven by debt investment portfolio growth, a greater weighted average principal outstanding of the company's debt investment portfolio and a higher level of unscheduled early repayments. The figure, however, marginally lagged the Zacks Consensus Estimate of $46 million.
Total operating expenses rose 2.7% year over year to $21.9 million. The rise was largely led by an increase in interest expenses and total employee compensation cost.
Total Portfolio Value & New Commitments
The fair value of Hercules Capital’s total investment portfolio was $1.42 billion as of Sep 30, 2017. In the reported quarter, the company provided approximately $154.4 million in new debt and equity-financing commitments to new and existing portfolio companies.
Balance Sheet
As of Sep 30, 2017, Hercules Capital’s net asset value was $10 per share compared with $9.90 as of Dec 31, 2016. The rise was driven by unrealized appreciation on the debt investment portfolio.
The company had $335.6 million in liquidity, including $140.6 million in unrestricted cash and cash equivalents and $195 million in credit facilities as of Sep 30, 2017.
At the end of the third quarter, the weighted average cost of debt comprising interest and fees was 5.6%, down from 6% in the prior-year quarter. The fall was mainly due to the redemption of 2019 Notes in first-quarter 2017.
Acquisition of Venture Loan Portfolio
Concurrently, Hercules Capital acquired venture loan assets from Ares Capital Corporation ARCC for nearly $125 million. The all-cash transaction is expected to reinforce Hercules Capital’s leadership position and enhance capabilities. The deal will be immediately accretive to its fourth-quarter 2017 earnings by roughly 1 cent per share.
Our Take
Hercules Capital’s loan origination activity continues to be on track and it strategically deploys its capital while maintaining a balanced and diversified approach across various industries and sectors. However, elevated expense levels owing to its efforts to enhance originations are expected to hurt the bottom line. Also, threat of concentration risks and stricter regulations continue to be the concerns.
Hercules Capital, Inc. Price, Consensus and EPS Surprise
Hercules Capital, Inc. Price, Consensus and EPS Surprise | Hercules Capital, Inc. Quote
Currently, Hercules Capital carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some stocks in the same industry including Garrison Capital Inc. GARS and FS Investment Corporation FSIC are scheduled to announce results on Nov 7 and Nov 9, respectively.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment