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Category: Stock Market and Great Elm Capital
Date: 19 September 2019 Stock Price: $8.48 We take a look at the 2nd quarter earnings release of their 2019 fiscal year of investment holding company Great Elm Capital. So in which sectors is the group heavily invested in? We take a look.
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About Great Elm Capital
Great Elm Capital Corp. is an externally managed, specialty finance company focused on investing in debt instruments of middle market companies. GECC elected to be regulated as a business development company under the Investment Company Act of 1940, as amended. GECC targets special situations and catalyst-driven investments as it seeks to generate attractive, risk-adjusted returns through both current income and capital appreciation.
The image below shows a breakdown of Great Elm's investment portfolio as at June 2019. The group is heavily invested in Wireless Telecommunications.
The image below shows a breakdown of Great Elm's investment portfolio as at June 2019. The group is heavily invested in Wireless Telecommunications.
Overview of Great Elm's latest earnings report
The numbers we are interested in (for the quarter):
- Total investment income: $6.711 million (down from $7.162 million for the same quarter of the previous year)
- Investment income declined by 6.3%
- Total expenses: $3.716 million (up from $1.084 million for the same quarter of the previous year)
- Net investment income: $2.995 million (down from $6.078 million for the same quarter of the previous year)
- Net investment income per share: $0.29 (down from $0.57 for the same quarter of the previous year)
- Weighted average shares in issue: 10.239 million (down from 10.652 million for the same quarter of the previous year)
- Net asset value per share: $10.30 (down from $10.34 as at December 2018)
- Monthly distribution: $0.083
- Distribution yield based on current stock price: 11.74%
- Distribution yield based on current stock price: 11.74%
Great Elm's management commentary on the results
WALTHAM, Mass., Aug. 13, 2019 (GLOBE NEWSWIRE) -- Great Elm Capital Corp. (“we,” “us,” “our” or “GECC”), (NASDAQ: GECC), today announced its financial results for the quarter ended June 30, 2019. “I’m pleased to report that NII covered our base distribution by such a wide margin this quarter,” remarked Peter A. Reed, GECC’s Chief Executive Officer. “Our team continues to be encouraged by the portfolio’s performance, outlook and increasing diversity.”
As of June 30, 2019, we held 27 debt investments, totaling approximately $173.2 million and representing 84.8% of the fair market value of our total investments. First lien and/or secured debt investments comprised 100.0% of the fair market value of our debt investments. As of the same date, we held seven equity investments, totaling approximately $31.0 million and representing 15.2% of the fair market value of our total investments.
As of June 30, 2019, the weighted average current yield on our debt portfolio was 11.4%. Floating rate instruments comprised approximately 74.4% of the fair market value of debt investments.
During the quarter ended June 30, 2019, we deployed approximately $61.7 million into 15 investments (which included investments in three new companies and 10 existing portfolio companies). The weighted average price of the debt deployment activity was 98% of par, carrying a weighted average current yield of 10.9%.
During the quarter ended June 30, 2019, we monetized, in part or in full, 16 investments for approximately $36.6 million, at a weighted average current yield of 10.8%. Our weighted average realized price was par.
Distributions
In August 2019, our Board set the monthly distributions for the fourth quarter of 2019 at a rate of $0.083 per share, representing an annualized base distribution yield of 9.7% on June 30, 2019 NAV.
Our distribution policy has been designed to set an annual base distribution rate that is covered by NII. From time to time, as catalyst-driven investments are realized or when we out-earn our declared distributions, we may supplement monthly distributions with special distributions from NII generated in excess of the declared distributions.
As of June 30, 2019, we held 27 debt investments, totaling approximately $173.2 million and representing 84.8% of the fair market value of our total investments. First lien and/or secured debt investments comprised 100.0% of the fair market value of our debt investments. As of the same date, we held seven equity investments, totaling approximately $31.0 million and representing 15.2% of the fair market value of our total investments.
As of June 30, 2019, the weighted average current yield on our debt portfolio was 11.4%. Floating rate instruments comprised approximately 74.4% of the fair market value of debt investments.
During the quarter ended June 30, 2019, we deployed approximately $61.7 million into 15 investments (which included investments in three new companies and 10 existing portfolio companies). The weighted average price of the debt deployment activity was 98% of par, carrying a weighted average current yield of 10.9%.
During the quarter ended June 30, 2019, we monetized, in part or in full, 16 investments for approximately $36.6 million, at a weighted average current yield of 10.8%. Our weighted average realized price was par.
Distributions
In August 2019, our Board set the monthly distributions for the fourth quarter of 2019 at a rate of $0.083 per share, representing an annualized base distribution yield of 9.7% on June 30, 2019 NAV.
Our distribution policy has been designed to set an annual base distribution rate that is covered by NII. From time to time, as catalyst-driven investments are realized or when we out-earn our declared distributions, we may supplement monthly distributions with special distributions from NII generated in excess of the declared distributions.
Great Elm Capital (NASDAQ:GECC) stock price history
The image below, obtained from Google, shows the stock price history of Great Elm Capital since its listing in November 2016. its not been a good time for Great Elm stockholders since the group's listing. When they listed they traded at around $12 a stock and its currently trading at $8.48. Thats a negative return of -29% since the group's listing. Interestingly Great Elm Capital is trading at close to the midpoint between its 52 week low and its 52 week high which to us is an indication that the short term sentiment and momentum of the stock is neutral.
Great Elm Capital (NASDAQ: GECC) latest stock valuation
So based on the earnings report of Great Elm Capital (NASDAQ: GECC) and what do we value Great Elm Capital (GECC) stock at? Based on the earnings and investments holdings reported what to we value Great Elm Capital at? The best measure of the value of an investment company such as Great Elm Capital is the company's net asset value per share. This is the value of their investments per stockholder. And it is currently reported by the group at $10.30. As a rule of thumb investment holding companies such as Great Elm tends to trade at between 10% and below its reported net asset value. Thus the stock should trade at between $8.75 and $9.27 a stock.
Based on this valuation and its current trading price we believe the group is fully valued at its current price. We would suggest that long term fundamental investors and value investors look to enter Great Elm Capital at least 10% below the trading range mentioned earlier. A good entry point would therefore be between $7.87 and $8.34
Based on this valuation and its current trading price we believe the group is fully valued at its current price. We would suggest that long term fundamental investors and value investors look to enter Great Elm Capital at least 10% below the trading range mentioned earlier. A good entry point would therefore be between $7.87 and $8.34