Main Street Capital Corporation (MAIN) clearly has a superior history of NAV and dividend growth. But is that history still relevant? MAIN closed Friday at $31.20 while its Q1-20 NAV was $20.73. That computes to a Price/NAV of 150% (the sector's highest ratio) while the sector average is 74%.
MAIN has been able to grow its NAV because it has historically been able to sell new shares well above NAV. And because MAIN has grown its NAV - MAIN merits a share price above its NAV.
Based on the current dividend of $0.205/month ($2.46/year) - MAIN sells at a yield of 7.88% -- the second lowest yield in the sector.
Let's move on to the forward projections - which is where the problem lies.
From Yahoo Finance
Actual NII = $0.5663/share
Earnings Estimate | Current Qtr. (Mar 2020) | Next Qtr. (Jun 2020) | Current Year (2020) | Next Year (2021) |
---|
No. of Analysts | 5 | 5 | 5 | 5 |
Avg. Estimate | 0.54 | 0.52 | 2.11 | 2.27 |
Low Estimate | 0.47 | 0.43 | 1.77 | 2.09 |
High Estimate | 0.60 | 0.60 | 2.43 | 2.45 |
Year Ago EPS | 0.64 | 0.63 | 2.50 | 2.11 |
On 4/24/20 MAIN had a pre-annoucement of Q!-20 NII of $0.55-$0.57 per share. This is a case of where the analysts do what they are supposed to do - and copy the company guidance.
There is research on this. When there is bad news projected - the actual news strongly tends to be worse. MAIN had not had a quarter with NII below $0.60 since Q3-17. Thus the mid-point $0.56 projection was BAD news. So for the analyst - posting their projection below that midpoint was the logical thing to do.
The $2.11 2020 NII - when divided by four quarters - suggest an average of $0.5275/share of NII per quarter. That is well below the $0.6150/share per quarter dividend. Let's call that the first omen that the dividend will be cut in the future.
My spreadsheets
| Q1-20 | Q4-19 | Q3-19 | Q2-19 | Q1-19 | Q4-18 | Q3-18 | Q2-18 | Q1-18 | Q4-17 | Q3-17 | Q2-17 | Q1-17 | Q4-16 | Q3-16 | Q2-16 | Q1-16 | Q4-15 | Q3-15 | Q2-15 | Q1-15 |
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Realized & Unrealized Gains | -216.247 | -24.482 | -5.110 | -1.363 | 4.979 | -32.578 | 34.446 | 15.939 | -3.437 | 23.957 | 5.441 | 12.310 | 5.922 | 21.311 | 12.096 | 5.036 | -12.615 | -22.659 | -10.430 | 10.125 | 11.642 |
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Realized_&_Unrealized_Gains/share | -$3.3508 | -$0.3838 | -$0.0807 | -$0.0217 | $0.0805 | -$0.5324 | $0.5665 | $0.2664 | -$0.0584 | $0.4107 | $0.0953 | $0.2192 | $0.1074 | $0.3985 | $0.2299 | $0.0979 | -$0.2496 | -$0.4511 | -$0.2084 | $0.2030 | $0.2526 |
In 9 out of the last 21 quarters, Realized and Unrealized Gains have been negative. That is a superior record - but not good enough to account for the degree of the past NAV performance.
Main Street Capital | Q1-20 | Q4-19 | Q3-19 | Q2-19 | Q1-19 | Q4-18 | Q3-18 | Q2-18 | Q1-18 | Q4-17 | Q3-17 | Q2-17 | Q1-17 | Q4-16 | Q3-16 | Q2-16 | Q1-16 | Q4-15 | Q3-15 | Q2-15 | Q1-15 |
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Interest income | 44.877 | 46.647 | 46.192 | 47.222 | 47.320 | 46.875 | 46.651 | 44.265 | 39.612 | 44.594 | 39.814 | 39.065 | 38.463 | 37.508 | 35.580 | 33.419 | 32.182 | 34.322 | 34.167 | 32.777 | 30.067 |
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Dividend income | 8.041 | 12.031 | 12.492 | 12.763 | 12.496 | 10.450 | 8.510 | 13.368 | 13.831 | 9.506 | 10.088 | 8.128 | 6.982 | 7.088 | 9.730 | 7.735 | 7.629 | 6.913 | 6.939 | 5.278 | 5.136 |
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Fee income | 3.232 | 1.969 | 1.384 | 1.308 | 1.549 | 1.955 | 3.402 | 1.924 | 2.499 | 1.697 | 1.844 | 3.078 | 2.444 | 2.235 | 1.284 | 1.711 | 2.064 | 2.118 | 1.273 | 3.011 | 1.602 |
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Total investment income | 56.150 | 60.649 | 60.068 | 61.293 | 61.365 | 59.280 | 58.263 | 59.869 | 55.942 | 55.797 | 51.786 | 50.271 | 47.889 | 46.830 | 46.594 | 42.865 | 41.875 | 43.353 | 42.379 | 41.066 | 36.805 |
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TII - fee (calc of PWAY) | 52.918 | 58.680 | 58.678 | 59.985 | 59.816 | 57.325 | 54.861 | 57.947 | 53.443 | 54.100 | 49.942 | 47.193 | 45.445 | 44.596 | 45.310 | 41.154 | 39.811 | 41.235 | 41.106 | 38.055 | 35.203 |
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Adjusted_PWAY_number | 8.92% | 9.02% | 9.18% | 9.57% | 9.58% | 9.34% | 9.04% | 9.80% | 9.23% | 9.97% | 9.21% | 9.09% | 9.19% | 8.93% | 9.44% | 8.72% | 8.75% | 9.16% | 8.81% | 8.50% | 8.06% |
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PIK income YTD | 591 | 5,018 | 3,482 | 2,502 | 1,183 | 2,304 | 1,760 | 952 | 567 | 4,884 | 4,122 | 3,125 | 1,607 | 6,497 | 4,911 | 3,042 | 1,303 | 3,624 | 2,485 | 1,534 | 806 |
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PIK income Qtr | 591 | 1,536 | 980 | 1,319 | 1,183 | 544 | 808 | 385 | 567 | 762 | 997 | 1,518 | 1,607 | 1,586 | 1,869 | 1,739 | 1,303 | 1,139 | 951 | 728 | 806 |
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PIK/TII ratio | 1.05% | 2.5% | 1.6% | 2.1% | 1.9% | 0.9% | 1.4% | 0.7% | 1.0% | 0.9% | 0.8% | 3.0% | 3.4% | 3.4% | 4.0% | 4.1% | 3.1% | 2.6% | 2.2% | 1.8% | 2.2% |
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Q1-20 TII had Fee income that was roughly $2 million above the run rate. So that needs to be subtracted to get an adjusted run rate. $36.545 million of Q1 NII with $2 million subtracted comes to $34.545 million or $0.5353/share. And that is close to the $0.52 consensus analysts projection. Let's call that the second omen that the dividend is going to be cut.
With the dividend at $2.46 and the NAV at $20.73 the Div/NAV ratio is 11.86%. That is deep into the danger zone. Unless there is NAV improvement in Q2, the dividend is going to be cut. Let's call that the third omen.
Main Street Capital | Q1-20 | Q4-19 | Q3-19 | Q2-19 | Q1-19 | Q4-18 | Q3-18 | Q2-18 | Q1-18 | Q4-17 | Q3-17 | Q2-17 | Q1-17 | Q4-16 | Q3-16 | Q2-16 | Q1-16 | Q4-15 | Q3-15 | Q2-15 | Q1-15 |
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Total investment income | 56.150 | 60.649 | 60.068 | 61.293 | 61.365 | 59.280 | 58.263 | 59.869 | 55.942 | 55.797 | 51.786 | 50.271 | 47.889 | 46.830 | 46.599 | 42.902 | 42.006 | 43.353 | 42.379 | 41.308 | 37.179 |
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Net investment income | 36.545 | 39.247 | 39.012 | 39.617 | 39.491 | 42.083 | 38.075 | 39.512 | 36.975 | 37.483 | 34.029 | 32.693 | 31.166 | 30.432 | 30.557 | 27.648 | 27.164 | 28.520 | 27.861 | 27.201 | 23.491 |
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Investments @ fair value | 2.373 | 2.602 | 2.557 | 2.508 | 2.497 | 2.454 | 2.427 | 2.364 | 2.314 | 2.171 | 2.170 | 2.077 | 1.979 | 1.997 | 1.920 | 1.888 | 1.819 | 1.800 | 1.867 | 1.790 | 1.747 |
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Wt Av Share Count | 64.536 | 63.775 | 63.297 | 62.880 | 61.865 | 61.187 | 60.807 | 59.829 | 58.852 | 58.327 | 57.109 | 56.167 | 55.125 | 53.473 | 52.613 | 51.441 | 50.550 | 50.229 | 50.037 | 49.883 | 46.080 |
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TII/share | $0.8701 | $0.9509 | $0.9490 | $0.9748 | $0.9919 | $0.9688 | $0.9582 | $1.0007 | $0.9506 | $0.9566 | $0.9068 | $0.8950 | $0.8687 | $0.8758 | $0.8857 | $0.8340 | $0.8318 | $0.8631 | $0.8470 | $0.8281 | $0.8068 |
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NII/share | $0.5663 | $0.6154 | $0.6163 | $0.6300 | $0.6383 | $0.6878 | $0.6262 | $0.6604 | $0.6283 | $0.6426 | $0.5959 | $0.5821 | $0.5654 | $0.5691 | $0.5808 | $0.5375 | $0.5374 | $0.5678 | 0.5568 | $0.5453 | $0.5098 |
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NAV/share | $20.73 | $23.91 | $24.20 | $24.17 | $24.41 | $24.09 | $24.69 | $23.96 | $23.67 | $23.53 | $23.02 | $22.62 | $22.44 | $22.10 | $21.62 | $21.11 | $21.18 | $21.24 | $21.79 | $21.84 | $21.87 |
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Wt Av Yield - LMM | 11.8% | 11.8% | 12.0% | 12.1% | 12.2% | 12.3% | 12.2% | 12.0% | 12.1% | 12.0% | 11.9% | 12.0% | 12.2% | 12.5% | 12.5% | 12.4% | 12.4% | 12.2% | 12.3% | 12.8% | 13.1% |
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Wt Av Yield - MM | 8.1% | 8.6% | 8.9% | 9.4% | 9.5% | 9.6% | 9.4% | 9.0% | 9.2% | 9.0% | 8.7% | 8.8% | 8.6% | 8.5% | 8.4% | 8.4% | 8.1% | 8.0% | 8.0% | 7.9% | 7.9% |
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Wt Av Yield - Private | 9.0% | 9.5% | 9.8% | 10.2% | 10.5% | 10.4% | 10.1% | 9.2% | 9.4% | 9.2% | 9.3% | 9.5% | 9.6% | 9.6% | 9.6% | 9.7% | 9.6% | 9.5% | 9.5% | 9.8% | 9.9% |
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Yield - 4 times TII/Inv | 9.46% | 9.32% | 9.40% | 9.78% | 9.83% | 9.66% | 9.60% | 10.13% | 9.67% | 10.28% | 9.55% | 9.68% | 9.68% | 9.38% | 9.71% | 9.09% | 9.23% | 9.66% | 9.08% | 9.23% | 8.51% |
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First Lien LMM | 98% | 95% |
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First Lien MM | 91% | 91% |
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Non-accruals @ cost | 5.3% | 4.8% | 4.4% | 4.4% | 3.6% | 3.9% | 3.5% | 3.5% | 3.3% | 2.3% | 2.7% | 2.6% | 2.7% | 3.0% | 2.8% | 3.7% | 3.7% | 0.4% | 0.2% | 0.3% | 1.2% |
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Non-accruals @ fair value | 1.3% | 1.4% | 1.6% | 1.5% | 0.9% | 1.3% | 1.2% | 1.2% | 0.8% | 0.2% | 0.4% | 0.2% | 0.2% | 0.6% | 0.4% | 0.5% | 0.5% | 3.7% | 3.0% | 3.1% | 3.9% |
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Energy_Equip_+_Fuel_@_cost | 8.3% | 9.0% | 9.4% | 9.0% | 9.8% | 7.9% | 6.6% | 7.0% | 7.0% | 6.9% | 6.9% | 9.2% |
| 8.7% |
| 10.0% |
| 9.4% |
| 11.4% |
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Energy Equip + Fuel @ fair | 7.0% | 8.1% | 8.2% | 8.2% | 8.9% | 8.4% | 5.7% | 6.8% | 6.4% | 6.2% | 5.7% | 7.5% |
| 6.9% |
| 7.6% |
| 7.2% |
| 10.7% |
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Non-accruals were up. The portfolio weighting in energy is too dang high. The good news - the weighting in "First Lien" is high. The TII,NII and NAV have all stopped having positive trends. Those are the fourth, fifth and sixth omens.
Main Street Capital | Q1-20 | Q4-19 | Q3-19 | Q2-19 | Q1-19 | Q4-18 | Q3-18 | Q2-18 | Q1-18 | Q4-17 | Q3-17 | Q2-17 | Q1-17 | Q4-16 | Q3-16 | Q2-16 | Q1-16 | Q4-15 | Q3-15 | Q2-15 | Q1-15 |
Debt | 1,084.038 | 1,114.012 | 1,059.983 | 1,040.867 | 1,001.994 | 996.146 | 944.559 | 953.714 | 770.076 | 797.171 | 886.761 | 820.822 | 793.010 | 848.258 | 809.135 | 839.334 | 795.461 | 780.398 | 835.344 | 511.963 | 653.284 |
Debt/share | 16.7974 | 17.4678 | 16.7462 | 16.5532 | 16.3581 | 16.2804 | 15.5337 | 15.9407 | 13.0850 | 13.6673 | 15.5275 | 14.6139 | 14.3857 | 15.8633 | 15.3790 | 16.3164 | 15.7361 | 15.5368 | 16.6945 | 10.2633 | 14.1772 |
Debt/share to NAV | 81.03% | 73.06% | 69.20% | 68.49% | 67.01% | 67.58% | 62.92% | 66.53% | 55.28% | 58.08% | 67.45% | 64.61% | 64.11% | 78.78% | 71.13% | 77.29% | 74.30% | 73.15% | 76.62% | 46.99% | 64.82% |
Interest expense | 12.441 | 13.122 | 12.839 | 12.329 | 11.916 | 11.511 | 10.884 | 10.833 | 10.265 | 9.659 | 9.420 | 8.793 | 8.608 | 8.619 | 8.573 | 8.255 | 8.182 | 8.360 | 8.302 | 7.657 | 7.796 |
Interest expense/share | 0.1928 | 0.2057 | 0.2028 | 0.1961 | 0.1926 | 0.1881 | 0.1790 | 0.1811 | 0.1744 | 0.1656 | 0.1649 | 0.1565 | 0.1561 | 0.1612 | 0.1629 | 0.1605 | 0.1619 | 0.1664 | 0.1659 | 0.1535 | 0.1692 |
Interest expense/TII | 22.16% | 21.64% | 21.37% | 20.11% | 19.42% | 19.42% | 18.68% | 18.09% | 18.35% | 17.31% | 18.19% | 17.49% | 17.97% | 18.40% | 18.40% | 19.24% | 19.48% | 19.28% | 19.59% | 20.59% | 20.97% |
Annualized_Interest_exp/Debt | 4.59% | 4.71% | 4.84% | 4.74% | 4.76% | 4.62% | 4.61% | 4.54% | 5.33% | 4.85% | 4.25% | 4.28% | 4.34% | 4.06% | 4.24% | 3.93% | 4.11% | 4.28% | 3.98% | 5.98% | 4.77% |
PWAY - Int exp/Debt | 487 bps | 431 bps | 434 bps | 483 bps | 482 bps | 472 bps | 443 bps | 526 bps | 390 bps | 512 bps | 496 bps | 481 bps | 485 bps | 532 bps | 547 bps | 516 bps | 512 bps | 538 bps | 510 bps | 325 bps | 374 bps |