Stellus Capital Investment (US:SCM)2024-08-10 14:42Financial Data and Key Metrics Changes - For Q2 2024, the company reported GAAP net investment income of $0.48 per share, exceeding the declared dividend of $0.40 per share [4] - Core net investment income was $0.50 per share, excluding estimated excise taxes [4] - Net asset value per share decreased by $0.05 during the quarter due to net unrealized depreciation on the investment portfolio [5] Business Line Data and Key Metrics Changes - The company invested $53 million in 8 new portfolio companies during the second quarter [6] - The investment portfolio at fair value increased to $900 million across 100 portfolio companies, up from $876 million across 94 companies as of March 31, 2024 [6] - 99% of loans were secured and 98% were priced at floating rates [6] Market Data and Key Metrics Changes - The company realized a gain of $2 million or $0.08 per share on an equity investment during the quarter [5] - The average loan per company is $9.5 million, with the largest investment at $19.6 million [6] Company Strategy and Development Direction - The company expects to end Q3 with a portfolio between $920 million and $940 million, with new fundings anticipated to exceed repayments for Q4 [8] - The company plans to continue distributing dividends at a rate of $0.40 per share per quarter, subject to Board approval [9] - The company aims to increase its bank facility over time to support portfolio growth [9] Management Comments on Operating Environment and Future Outlook - Management expressed optimism about investing in the lower middle market and highlighted a selective investment strategy [19] - The company has a significant amount of unused capacity in its current credit facility, which has a commitment of $260 million [15] - Management indicated that they would like to increase leverage back to target levels, aiming for a regulatory test of about 1:1 [18] Other Important Information - The company has paid over $262 million in dividends since its IPO, representing $15.75 per share to an investor in the IPO [4] - Asset quality is slightly better than planned, with 23% of the portfolio rated a 1 or ahead of plan [7] Q&A Session Summary Question: Is the fee waiver something to expect in coming quarters? - Management indicated that it depends on each quarter's performance and does not expect anything for the remainder of the year under the test [10] Question: Can you provide details on the nonaccruals related to EH Real Estate? - Management clarified that EH Real Estate is involved in the residential realtor title company insurance business in the Midwest [12] Question: What drove the unrealized depreciation in the quarter? - Management stated it was driven more by company-specific activities, but overall, it was not a large number [13] Question: Will the company tap the credit facility more going forward? - Management confirmed they have unused capacity in the credit facility and plan to utilize it as the portfolio grows [15] Question: What are the thoughts on leverage in the coming quarters? - Management noted they are currently less levered than usual due to an equity raise and aim to return to target leverage levels [18]