Contrasting Alcentra Capital Corp. (ABDC) and TPG Specialty Lending (TSLX)

Alcentra Capital Corp. (NASDAQ: ABDC) and TPG Specialty Lending (NYSE:TSLX) are both small-cap finance companies, but which is the superior investment? We will compare the two companies based on the strength of their dividends, valuation, institutional ownership, risk, profitability, earnings and analyst recommendations.

Dividends

Alcentra Capital Corp. pays an annual dividend of $1.36 per share and has a dividend yield of 12.9%. TPG Specialty Lending pays an annual dividend of $1.56 per share and has a dividend yield of 7.5%. Alcentra Capital Corp. pays out -1,700.0% of its earnings in the form of a dividend. TPG Specialty Lending pays out 71.9% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Alcentra Capital Corp. is clearly the better dividend stock, given its higher yield and lower payout ratio.

Profitability

This table compares Alcentra Capital Corp. and TPG Specialty Lending’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Alcentra Capital Corp. -2.77% 11.13% 6.86%
TPG Specialty Lending 60.77% 12.68% 7.41%

Earnings and Valuation

This table compares Alcentra Capital Corp. and TPG Specialty Lending’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Alcentra Capital Corp. N/A N/A N/A ($0.08) -131.75
TPG Specialty Lending N/A N/A N/A $2.17 9.57

Alcentra Capital Corp. is trading at a lower price-to-earnings ratio than TPG Specialty Lending, indicating that it is currently the more affordable of the two stocks.

Analyst Ratings

This is a breakdown of recent recommendations for Alcentra Capital Corp. and TPG Specialty Lending, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Alcentra Capital Corp. 0 3 2 0 2.40
TPG Specialty Lending 0 2 2 0 2.50

Alcentra Capital Corp. presently has a consensus target price of $13.50, indicating a potential upside of 28.08%. TPG Specialty Lending has a consensus target price of $20.25, indicating a potential downside of 2.46%. Given Alcentra Capital Corp.’s higher possible upside, equities research analysts clearly believe Alcentra Capital Corp. is more favorable than TPG Specialty Lending.

Insider & Institutional Ownership

31.5% of Alcentra Capital Corp. shares are owned by institutional investors. Comparatively, 62.7% of TPG Specialty Lending shares are owned by institutional investors. 5.0% of Alcentra Capital Corp. shares are owned by company insiders. Comparatively, 4.9% of TPG Specialty Lending shares are owned by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock is poised for long-term growth.

Volatility & Risk

Alcentra Capital Corp. has a beta of 0.74, suggesting that its stock price is 26% less volatile than the S&P 500. Comparatively, TPG Specialty Lending has a beta of 0.71, suggesting that its stock price is 29% less volatile than the S&P 500.

Summary

TPG Specialty Lending beats Alcentra Capital Corp. on 7 of the 12 factors compared between the two stocks.

About Alcentra Capital Corp.

Alcentra Capital Corporation is a specialty finance company that operates as a non-diversified, closed-end management investment company. The Company operates as a business development company and a regulated investment company. It provides customized debt and equity financing solutions to lower middle-market companies, which are companies having annual earnings, before interest, taxes, depreciation and amortization of between $5 million and $15 million, and/or revenues of between $10 million and $100 million. Its investments range in size from $5 million to $15 million. Its investment objective is to generate both current income and capital appreciation primarily by making direct investments in lower middle-market companies in the form of senior debt, unitranche, second lien, subordinated debt and, to a lesser extent, senior debt and minority equity investments. Its investment focus is to make loans to, and selected equity investments in, privately-held lower-middle-market companies.

About TPG Specialty Lending

TPG Specialty Lending, Inc. is an externally managed, closed-end, non-diversified management investment company. The Company is a specialty finance company focused on lending to middle-market companies. It seeks to generate current income primarily in the United States-domiciled middle-market companies through direct originations of senior secured loans and originations of mezzanine and unsecured loans and investments in corporate bonds and equity securities. The Company invests in first-lien debt, second-lien debt, mezzanine and unsecured debt and equity and other investments. Its first-lien debt may include standalone first-lien loans; last out first-lien loans; unitranche loans and secured corporate bonds. Its second-lien debt may include secured loans and secured corporate bonds, with a secondary priority behind first-lien debt. As of December 31, 2016, the Company’s portfolio was invested across 19 different industries. The Company’s investment advisor is TSL Advisers, LLC.

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