4/7/2019
Hercules Capital Inc (NYSE: HTGC)
So I was incorrect not to put 75% of my cash straight into IVV or SPY after the drop this past year. I believe there may be another drawback in the next two years and need an asset with growth potential that won't necessarily move in lock step with the market, and so I've been looking at "Hedge Fund" style investments. HTGC is a business development company that does venture capital lending specializing in Tech, life sciences, renewable energy, and post-start-up companies deemed to be of value. So basically this is a venture firm with those focuses.
Price at write-up $12.68
Indexes (30, 180 day looks)
VIX: 12.82 (16.05, 22.06)
TED: 24.98 (18.45, 43)
S&P500: 2893(4.38%, 14.25%)
Valuation Ratios
Target: $16
This stock came up as due diligence for APO and my desire for some dividends and actively managed investment groups, particularly contrarians. I'll be forced to look at MAIN again before long as I'm quite familiar with their investment style. And while I generally don't like stock issuance to pay dividends, in this particular sector (finance) it occurs and is a useful debt tool for Business development companies (BDCs) even though AND because they are required to distribute 90% of their profit to shareholders and the nature of investors wanting regular dividends rather than random lump sums.
Recently raised $900m through securitization, raised their bond rating to "investment grade" with DBRS, integrated Ares Capital debt portfolio acquisition, purchased Gibraltar Capital as a wholly owned subsidiary, the man responsible for all this David Lund has now retired for a second time after 16 months serving as interim CFO. Given this, it isn't
Founder and CEO Manuel Henriquez was recently charged with conspiracy to commit mail fraud & honest services mail fraud in the College Bribery scheme.
My Thoughts
Looking at cash flow, dividends (112.7m) can be entirely attributed to the issuing of stock less 27.6m with no shortage of money from long-term debt. Net income is only 76.5m. Yet somehow in the venture business, I find this acceptable, even though I frown upon using this form of capital generation for investments & especially dividends.
The founder, Chairman, and CEO, Manuel Henriquez is aiming to keep the portfolio balanced at 50% tech and 50% life sciences.
Hercules Capital Inc (NYSE: HTGC)
So I was incorrect not to put 75% of my cash straight into IVV or SPY after the drop this past year. I believe there may be another drawback in the next two years and need an asset with growth potential that won't necessarily move in lock step with the market, and so I've been looking at "Hedge Fund" style investments. HTGC is a business development company that does venture capital lending specializing in Tech, life sciences, renewable energy, and post-start-up companies deemed to be of value. So basically this is a venture firm with those focuses.
Price at write-up $12.68
Indexes (30, 180 day looks)
VIX: 12.82 (16.05, 22.06)
TED: 24.98 (18.45, 43)
S&P500: 2893(4.38%, 14.25%)
Valuation Ratios
| Price/Earnings (TTM) | 14.85 |
| Price/Sales (TTM) | x5.89 |
| Earnings per share | 0.85 |
| Price/Book (MRQ) | x1.29 |
| Price/Cash Flow (TTM) | x15.95 |
| Held by institutions | 34.35% |
| Short interest | 3.07% |
| Dividend | 9.78% |
| MarketCap | $1.2B |
Target: $16
This stock came up as due diligence for APO and my desire for some dividends and actively managed investment groups, particularly contrarians. I'll be forced to look at MAIN again before long as I'm quite familiar with their investment style. And while I generally don't like stock issuance to pay dividends, in this particular sector (finance) it occurs and is a useful debt tool for Business development companies (BDCs) even though AND because they are required to distribute 90% of their profit to shareholders and the nature of investors wanting regular dividends rather than random lump sums.
Recently raised $900m through securitization, raised their bond rating to "investment grade" with DBRS, integrated Ares Capital debt portfolio acquisition, purchased Gibraltar Capital as a wholly owned subsidiary, the man responsible for all this David Lund has now retired for a second time after 16 months serving as interim CFO. Given this, it isn't
Founder and CEO Manuel Henriquez was recently charged with conspiracy to commit mail fraud & honest services mail fraud in the College Bribery scheme.
My Thoughts
Looking at cash flow, dividends (112.7m) can be entirely attributed to the issuing of stock less 27.6m with no shortage of money from long-term debt. Net income is only 76.5m. Yet somehow in the venture business, I find this acceptable, even though I frown upon using this form of capital generation for investments & especially dividends.
The founder, Chairman, and CEO, Manuel Henriquez is aiming to keep the portfolio balanced at 50% tech and 50% life sciences.
Risks
If the founder & CEO faces jail time for his frauds, that will be a problem. He's a key man and serving any time will be a nightmare, since this isn't a business fraud he might actually serve jail time. Anything more than 2 quarters would be unacceptable.
A market downturn in a few years will hurt them.
Not diversified.
Conclusion
The stock dropped 7% after charges were brought. I don't think this is a material risk outside of jail time, I think this is just a powerful guy trying to get his kid into an elite college because that stupid piece of paper means something.
I'll probably try to pick it up between 12.40 and 12.60 in the next week, and consider selling puts at 11.
Due Diligence - AMG, OAK, ARCC, JHG, APO
If the founder & CEO faces jail time for his frauds, that will be a problem. He's a key man and serving any time will be a nightmare, since this isn't a business fraud he might actually serve jail time. Anything more than 2 quarters would be unacceptable.
A market downturn in a few years will hurt them.
Not diversified.
Conclusion
The stock dropped 7% after charges were brought. I don't think this is a material risk outside of jail time, I think this is just a powerful guy trying to get his kid into an elite college because that stupid piece of paper means something.
I'll probably try to pick it up between 12.40 and 12.60 in the next week, and consider selling puts at 11.
Due Diligence - AMG, OAK, ARCC, JHG, APO
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