Hercules Tech Beats Marginally - Analyst Blog
May 06 2011 - 2:05PM
Zacks
Hercules Technology Growth Capital Inc.’s
(HTGC) first quarter 2011 distributable net operating income (DNOI)
came in at 25 cents per share, 3 cents ahead of the Zacks Consensus
Estimate. Also, this compares favorably with DNOI of 17 cents in
the prior-year quarter.
Better-than-expected results in the quarter were attributable to
a rise in total investment income and higher net realized gain on
investments, partially offset by higher operating expenses.
Additionally, Hercules ended the quarter with a strong balance
sheet and a high level of liquidity.
Quarter in Detail
Hercules’ total investment income for the reported quarter came
in at $19.2 million, up 53.0% from $12.5 million in the prior-year
quarter. The increase was attributable to higher average balance of
interest earning investments outstanding during the reported
quarter and one-time fees related to early payoffs. Total
investment income also topped the Zacks Consensus Estimate of $18.0
million.
Total operating expenses (excluding interest expense and loan
fees)were $6.2 million, up 34.8% from $4.6 million in the year-ago
quarter. Higher employee compensation and increased accounting and
legal expenses were responsible for this increase.
On a year-over-year basis, interest expense and loan fees
increased 39.1% to $3.2 million. At March 31, 2011, the
weighted average cost of debt, comprising interest and fees, was
7.7% compared with 7.2% at March 31, 2010.
Net investment income (before investment gains and losses) for
the quarter came in at $9.8 million or 23 cents per share compared
with $5.6 million or 16 cents in the year-ago quarter. The increase
was mainly attributable to higher interest earned from debt
investments.
Net realized gain on investments was $4.4 million compared with
$0.4 million in the year-ago quarter.
Business Highlights
The fair value of Hercules’ total investment portfolio was
approximately $445.1 million as of March 31, 2011 compared with
$472.0 million as of December 31, 2010. During the quarter, the
company provided approximately $83.9 million debt funding to the
new and existing portfolio companies.
As of March 31, 2011, Hercules’ net asset value was $9.20 per
share, compared with $9.50 as of December 31, 2010. Net unrealized
depreciation explains the decrease in the quarter.
Dividend Update
Concurrent with the earning release, Hercules declared a
quarterly dividend of 22 cents per share. This represents the
company’s twenty-third consecutive dividend since inception.The
dividend will be paid on June 23 to shareholders of record as of
May 13.
Our Viewpoint
Despite the capital market disruption and sluggish economic
recovery, a steady pace of new investments by venture capitalists
is expected. This could lead to new investment opportunities, even
though we remain cautious about Hercules’ investment and credit
management strategies.
One of the competitors of Hercules, Gladstone Investment
Corporation (GAIN) is scheduled to announce its fiscal
fourth quarter (ended March 31) results on May 23.
Hercules currently retains a Zacks #4 Rank, which translates
into a short-term Sell rating. However, considering the
fundamentals, we maintain our long-term Neutral recommendation on
the stock.
GLADSTONE INVES (GAIN): Free Stock Analysis Report
HERCULES TECH (HTGC): Free Stock Analysis Report
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