Janney Montgomery Scott Initiates Coverage on Fifth Street Finance (FSC)
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Janney Montgomery Scott initiates coverage on Fifth Street Finance (NYSE: FSC) with a Buy.
Janney analyst says, "With low leverage of 6% versus the peer average of 45%, non-material near term debt maturities, a dividend that is more than fully supported by Net Investment Income (NII), and substantial opportunities for growth, Fifth Street Capital is one of the best positioned RIC/BDCs in the space. Our expected range of NII CAGR is 2% to 23% with a base case dividend growth rate of 13% and best case growth of 38% over the next 3 years. We see obtaining an additional line of credit or Small Business Investment Company (SBIC) license as the primary catalysts for NII growth. Fifth Street is seeking $225 million in SBIC leverage under the Small Business Investment Company program and we believe approval is likely. An SBIC license would provide access to debt capital at attractive prices, and be highly accretive to NII, adding $0.17 per share in year one and $0.48 on an ongoing basis. This earnings growth will support substantial dividend growth of 20% to 25% annually over the next 5 years.Our fair value estimate of $10.50 assumes the SBIC license and additional debt capital is NOT obtained and implies a Price to NII multiple of 6.8x on our FY09 estimate, forward dividend yield of 10.5%, and a Price to Net Asset Value (NAV) of 0.88x."
Fifth Street Finance Corp. is a fund managed by Fifth Street Capital LLC specializing in mezzanine investments.
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