From UBS....brief clip....
Raising FY24/FY25 estimates; Solid pipeline QTD
Following FY4Q23 (March quarter) results, we raise our FY24/FY25 estimates to $2.55 / $2.40 from $2.47 / $2.34. Stronger net growth and better margin dynamics incrementally improve our earnings outlook. Effective balance sheet management should characterize the remainder the calendar year – namely we expect tactical issuance of equity through the ATM facility (~$75mm UBSe) to help manage regulatory leverage to the lower end of the target range (~0.90x) and support portfolio growth. This is a departure from our prior model which included muted equity issuance and a steady increase to the top of the leverage range (~1.1x) by the Dec quarter. The lending opportunity continues to be there in the near-term, with $80mm of commitments QTD, picking up from ~$67mn last quarter. This is at least partly attributable to banks pulling back from the lower middle market, per management commentary. We forecast net growth of $170mm through year-end. Portfolio yields came in higher than our expectations and help lift our FY24/FY25 yield forecast to 13.3% / 12.2% from 13.0% / 12.1%. The base dividend ($0.54/sh) should remain well covered relative to quarterly NII/sh which we model to remain above $0.58 through calendar ’24E (despite forward curve implied rate cuts). Furthermore, we forecast the $0.05/sh supplemental dividend continuing for another four quarters then stepping down slightly. Despite a sturdy earnings profile, we maintain our Neutral rating and $19 PT. CSWC is trading at 1.12x, near its historical average of ~1.15x, and is unlikely to rerate beyond that until broader economic / credit concerns abate.
