Stellus Capital Investment (US:SCM)2024-03-05 22:36Financial Data and Key Metrics Changes - Investment income per share was $0.50 and GAAP net investment income was $0.49 per share, with net asset value increasing by $0.07 to $13.26 per share [6] - A tax refund of $3 million was recorded due to a realized loss on previously marked down positions [6] - The company has $60 million of equity investments at cost marked at $72 million, indicating potential for greater than 2 times realization based on historical performance [7] Business Line Data and Key Metrics Changes - The investment portfolio at fair value was approximately $874 million across 93 portfolio companies, down from $886 million across 96 companies at the end of the previous quarter [32] - During the fourth quarter, the company invested $40.3 million in 3 new and 11 existing portfolio companies, with net portfolio decline at cost of $39.5 million [32] Market Data and Key Metrics Changes - The company is experiencing a slower environment for originations compared to previous quarters, with expectations that funding will be offset by repayments [8] - The average loan per company is $9.9 million, with the largest investment being $18.9 million, both at fair value [17] Company Strategy and Development Direction - The company aims to benefit from higher interest rates, with over 98% of its portfolio priced at floating rates and approximately 73% of liabilities at fixed rates [20] - There is an expectation for increased investment activity in the second half of the year, supported by substantial capacity for new investments [21] Management's Comments on Operating Environment and Future Outlook - Management noted that while the current environment is slower, they anticipate a pickup in activity due to significant dry powder in private equity and realizations from private equity firms [27] - The company expects to continue covering its dividend of $0.40 per share, with an annual yield of about 12.4% based on recent stock prices [34] Other Important Information - The company has two SBIC licenses, with plans to work with the SBA for a third license as some debentures are coming due [40] - Spillover income is projected to be about $37 million, which is sufficient to cover current dividends [48] Q&A Session Summary Question: How does the company view the 14% of the portfolio rated 3 or below? - Management believes these positions are manageable and supported by private equity ownership, indicating predictable results despite being under plan [38] Question: What is the expectation for fee income and other income in the upcoming year? - Management expects less other income in the first quarter but anticipates repayments to pick up later in the year [25] Question: What is the company's outlook on funding activity in the second half of the year? - Management expects funding activity to increase due to a combination of pipeline activity and broader market developments [42] Question: What are the expectations for PIK income in 2024? - Management does not expect a material change in PIK income for 2024, noting flexibility as a lender to provide PIK interest if necessary [52] Question: Are there any particular industries that the company finds increasingly attractive? - The company focuses on companies with substantial free cash flow generation and growth potential, avoiding high maintenance CapEx and commodity price risks [67]