Gilford Securities, a full-service investment firm, headquartered in New York City, reiterated their Hold rating for Fifth Street Finance Corp. (NYSE: FSC) in a research report issued to clients. The analyst wrote, “Fifth Street Finance took advantage of the most robust, tax-driven environment that we are likely to have for years to come to originate and fund $398.8MM in new investment in the December quarter (2013 Fiscal Q1). After payoffs of $49.8MM and sales of $33.7MM, FSC created Net Originations of $315MM for the quarter. The end result was Net Investment Income (NII) per share of $0.28 versus Street Consensus and our estimate of $0.27 per share. The improved NII was driven by significantly better Fee Income ($12.8MM versus our estimate of $9.6MM), a by-product of both strong origination volume and higher prepayment activity. There is no question that FSC has built an impressive origination machine capable of handling significant loan volume on a quarter by quarter basis. The challenge going forward will be sourcing enough opportunities to feed the machine while keeping loan quality high.”
The analyst reiterated his Hold rating on Fifth Street citing the following: “We continue to see NAV drag from reporting NII that does not cover the dividend which has been extended by the dilution from the most recent offering. We also still need keep a wary eye on the loans carried in category 3, as the distressed portion of the portfolio in categories 4 and 5 have been written down to almost $0. Thus at the current price we are not ready to upgrade our rating with the shares trading at 9.8% premium to NAV (see table below). Until such time as FSC shares trade at a discount to NAV, we will continue with our hold rating. We currently have no target price for FSC other than we expect at some point in time in the future that FSC shares have the risk of returning to NAV, thus potentially wiping out a year’s worth of return.”
About Gilford Securities
Founded in 1979 by senior officers of the former Blythe Eastman Dillon & Co., Gilford is a full-service boutique investment firm providing an array of financial services to institutional and retail clients including corporate finance services, independent equity research, equity sales and trading, retirement planning and wealth management. The firm’s research effort targets select underserved niche segments in the small and middle capitalization market sector.
For more information about Gilford Securities, please visit http://www.gilfordsecurities.com
Contact:
John Richter
Gilford Securities Incorporated
212-888-6400
John.richter@gilfordsecurities.com