04-19-2021, 09:34 PM
OK this is very basic analysis. This is a BDC (Business Development Corporation). They used to be called Venture Capitalists. There is nothing wrong with that but they are loan sharking to new businesses. Usually private, maybe always because a publicly held company can just sell share in one form or another.
I mentioned Ares Capital, ARCC here a week or two ago. I believe it is the largest BDC. It withstands bad markets but it gets roughed up.
ARCC
-Price to Book 1.15 1.0 PB is fair value so currently ARCC trades at a 15% premium. They don't manufacture anything. It's a bank of sorts so you are paying $115 for $100 worth of assets in exchange for a high dividend. I don't like to pay much over book because I'll get smoked when the market gets scared. Guaranteed.
-Payout ratio 93%.
HRZN
-Price to book 1.58
Payout ratio 335%
See anything alarming? PE is not relevant to a fund like this. These are income machines period. It's an income machine. They harvest income, pay themselves some fees and pass out the dividend. If they want to get larger they likely issue new shares if they can loan it out for premium rates so no harm is done. I sold ARCC recently 15% overvalued is asking for trouble as some point. Most likely a very rough market. If HRZN pulled back 30% it would be close to ARCC PB and they would still have to financially engineer the dividend. There is no comparison between these funds and ARCC dividend is not that much lower actually. I'll buy ARCC again on a hard correction. I've done so several times.
A BDC needs to pass this very basic scrutiny. I don't pretend to know all the accounting. The above can't be a hard fail or you get torched sooner or later. You saw today how fast it can come.
I mentioned Ares Capital, ARCC here a week or two ago. I believe it is the largest BDC. It withstands bad markets but it gets roughed up.
ARCC
-Price to Book 1.15 1.0 PB is fair value so currently ARCC trades at a 15% premium. They don't manufacture anything. It's a bank of sorts so you are paying $115 for $100 worth of assets in exchange for a high dividend. I don't like to pay much over book because I'll get smoked when the market gets scared. Guaranteed.
-Payout ratio 93%.
HRZN
-Price to book 1.58
Payout ratio 335%
See anything alarming? PE is not relevant to a fund like this. These are income machines period. It's an income machine. They harvest income, pay themselves some fees and pass out the dividend. If they want to get larger they likely issue new shares if they can loan it out for premium rates so no harm is done. I sold ARCC recently 15% overvalued is asking for trouble as some point. Most likely a very rough market. If HRZN pulled back 30% it would be close to ARCC PB and they would still have to financially engineer the dividend. There is no comparison between these funds and ARCC dividend is not that much lower actually. I'll buy ARCC again on a hard correction. I've done so several times.
A BDC needs to pass this very basic scrutiny. I don't pretend to know all the accounting. The above can't be a hard fail or you get torched sooner or later. You saw today how fast it can come.