The case for & against
Bull & Bear analysis
Bearish
FS KKR Capital Corp. (NASDAQ: FSK) is a prominent player in the business development company (BDC) sector, focusing on middle-market companies through debt and equity investments. The firm primarily invests in senior secured loans and seeks to generate income while enhancing shareholder value amidst evolving market conditions. FSK operates within the broader theme of private credit and asset management, navigating a landscape marked by geopolitical and macroeconomic volatility, where it aims to capitalize on attractive investment opportunities.
Bull says
- ↑3.8% dividend yield with Q3 distribution of $0.44 per share
- ↑$300 M repurchase program executed, ~377.8 K shares bought back
- ↑Book-to-price of 1.82 suggests potential undervaluation
- ↑Oil sensitivity of 0.65 cushions returns amid rising commodities
- ↑$2.42 M investment by Focus Partners signals institutional support
- ↑Ongoing asset rotation and leverage management to improve portfolio
Bear says
- ↓NAV per share declined 2.8% QoQ to $18.30 in Q2
- ↓Debt-to-equity ratio remains elevated at 127% (leverage 1.58×)
- ↓Non-accrual assets at 7.1% weigh on investment income
- ↓Total investment income down to $290 M (-$14 M QoQ)
- ↓Negative earnings yield and weak profitability factors undermine returns
- ↓Geopolitical tensions and risk-off sentiment may hinder deal flow
Investment themes with FSK
BDCs↓ -0.61%
Business development companies providing financing to firms
ARCC · OBDC · MAIN
Earnings Call · Q3 2023 · Mgmt. Guidance
Updated 12-23-2024neutral
Transcript signals
Bull points
- We still feel quite constructive on the market opportunity.
- We’ve got a fair amount of AUM dedicated to that space and the ability to kind of play up and down the capital structure which I think is a real nice competitive advantage for us.
- We estimated sort of $5 trillion today, sort of on its way to $7 trillion. So that's sort of quite positive.
Bear points
- if you do look back kind of to the same quarter a year ago, I think your fee income was 2x or 2.5x the size of sort of where it is today. So I do think that's a nice, let's call it, natural -- even if we do see a certain amount of repayments, those repayments could generate, depending on when the loan was put on a certain amount of exit fees but then the new deals will generate a certain amount of kind of new deal fees as well.
- I don't think -- I think the current quarter was $12 million of fee income. I think that's lower than any kind of normal and historical sort of average.
- Global Jet dominates the nonaccrual list. I think it's 60% plus of the nonaccruals fair value marked at a relatively high 75% to 80%.
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