The private equity industry is well-positioned for substantial growth in the longer term, largely attributable to a growing High-Net-Value Individuals (HNWI) base, an uptick in global deals, and the sector’s enhanced ability to navigate market turbulence. Given this backdrop, private equity stocks Golub Capital BDC (GBDC), WhiteHorse Finance (WHF), and Goldman Sachs BDC (GSBD) might be watched now. Read on….
As we usher in a recent 12 months, the private equity industry scenario might proceed to be molded by trends harking back to people who characterised 2023 – modest fundraising, (*3*)rising rates of interest, and a posh macroeconomic backdrop tainted by geopolitical turmoil. Nonetheless, a glimmer of optimism illuminates the industry’s horizon, courtesy of an expanding pool of high-net-worth individuals (HNWI), a surge in transactional actions, and escalating fundraising initiatives emanating from secondary funds.
Considering this scenario, it might be astute for investors to watch private equity stocks Golub Capital BDC, Inc. (GBDC), WhiteHorse Finance, Inc. (WHF), and Goldman Sachs BDC, Inc. (GSBD) for higher entry opportunities.
In 2023, the private equity (PE) landscape navigated through unique circumstances driven by a spike in rates of interest, a banking catastrophe, and widespread geopolitical uncertainty. Not surprisingly, these tumultuous conditions led to a slump in PE activity all year long. Concurrently, an abundance of uncertainty, an antagonist to successful dealmaking, pervaded the worldwide markets. Nonetheless, through astute risk mitigation, managers ensured that PE-backed deals proceeded unhindered.
The U.S. currently spearheads the worldwide PE industry with assets trumping $6 trillion. The consistency of the industry was underlined as PE firms pronounced deals value $101 billion within the third quarter of 2023. Furthermore, the rising variety of deals reinforced this stability, where sponsors signed 93 deals of $100 million within the third quarter, marking a 63% surge from the primary quarter of 2023.
Due to their record dry powder valued at $2.59 trillion and diversified portfolios incorporating fresh asset classes, PE firms are greater than well-equipped to withstand market volatility. This diversification has fortified the resilience and agility of PE firms in managing unfavorable alterations in marketplace dynamics.
Moreover, 2024 appears poised for a considerable uptick in secondary transactions. Secondaries funds exhibited an accelerated fundraising rhythm last 12 months, with a complete of $68.1 billion raised as of September 2023. The extent of secondaries dry powder reached $202.7 billion.
In recent times, the strategy of PE firms targeting High Net Value Individuals (HNWI) to amplify fundraising has garnered considerable attention. It is going to be compelling to observe if this approach makes significant strides in 2024. Considering traditional exit routes have change into impassable, PE firms have found another in net asset value financing to generate capital, thereby enabling distributions to Limited Partners.
Consequently, the global PE market is projected to reach $1.10 trillion by 2032, growing at a CAGR of 9.7%.
With these trends in mind, let’s delve into the basics of the three Private Equity stock picks, starting with the third selection.
Stock #3: Golub Capital BDC, Inc. (GBDC)
GBDC is a business development company and operates as an externally managed closed-end non-diversified management investment company. It invests in debt and minority equity investments in middle-market corporations which can be, generally, sponsored by private equity investors.
On December 29, 2023, GBDC paid stockholders a quarterly dividend of $0.37 per share. Its annualized dividend rate of $1.48 per share translates to a dividend yield of 9.68% on the present share price. Its four-year average yield is 9.18%. GBDC’s dividend payments have grown at CAGRs of 5.3% and 1.8% over the past three and five years, respectively.
Through the three months ended September 30, 2023, GBDC repurchased roughly $0.10 million, or 5,250 shares, of its common stock pursuant to the corporate’s previously disclosed share repurchase program.
Through the 12 months that ended September 30, 2023, GBDC repurchased roughly $16.90 million, or 1.30 million shares, of its common stock pursuant to the corporate’s previously disclosed share repurchase program.
On November 30, 2023, GBDC announced that it had priced an underwritten public offering of $450 million in aggregate principal amount of seven.05% notes due 2028. The notes will mature on December 5, 2028, and will be redeemed in whole or partly at the corporate’s option at any time prior to November 5, 2028, at par plus a “make-whole” premium, and thereafter at par.
GBDC’s trailing-12-month money from operations of $195.37 million is 39% higher than the industry average of $140.56 million. Its trailing-12-month gross profit and net income margins of 100% and 42.88% are 65.6% and 69.4% higher than the industry averages of 60.37% and 25.31%, respectively.
For the fiscal fourth quarter that ended September 30, 2023, GBDC’s total investment income and net investment income after tax increased 6.3% and 13.1% quarter-over-quarter to $164.54 million and $83.44 million, respectively.
For a similar quarter, its net gain on investments got here at $18.39 million, compared to a net loss on investments of $873 thousand within the prior quarter. Also, its basic and adjusted earnings per common share stood at $0.60, up 39.5% from the previous quarter.
Street expects GBDC’s revenue and EPS within the fiscal second quarter ending March 2024 to increase 10.6% and 11.6% year-over-year to $162.48 million and $0.48, respectively. The corporate surpassed consensus EPS estimates in each of the trailing 4 quarters and consensus revenue estimates in three of the trailing 4 quarters, which is impressive.
The stock has gained 16.8% over the past 12 months to close the last trading session at $15.29. Over the past nine months, it has gained 15.9%.
GBDC’s fundamentals are reflected in its POWR Rankings. The stock has an overall C rating, equating to Neutral in our proprietary rating system. The POWR Rankings are calculated by considering 118 distinct aspects, with each factor weighted to an optimal degree.
GBDC has a B grade for Momentum. Throughout the Private Equity industry, it’s ranked #3 out of 34 stocks.
Beyond what we’ve stated above, we’ve also rated the stock for Growth, Value, Stability, Sentiment, and Quality. Get all rankings of GBDC here.
Stock #2: WhiteHorse Finance, Inc. (WHF)
WHF is a business development company, a non-diversified, closed-end management company specializing in originating senior secured loans, lower middle market, and growth capital industries. It typically invests between $5 million and $25 million in corporations having enterprise value of between $50 million and $350 million.
On January 3, WHF distributed $0.39 per share to stockholders with respect to the quarter that ended December 31, 2023. Its annualized dividend rate of $1.54 per share translates to a dividend yield of 12.08% on the present share price. Its four-year average yield is 12.38%. WHF’s dividend payments have grown at a 1.4% CAGR over the past three years.
WHF’s trailing-12-month ROTA of two.11% is 82.2% higher than the industry average of 1.16%. Its trailing-12-month gross profit and EBIT margins of 100% and 70.77% are 65.6% and 226.8% higher than the industry averages of 60.37% and 21.65%, respectively.
For the fiscal third quarter that ended September 30, 2023, WHF’s total investment income and core net investment income increased 20% and 25.2% year-over-year to $25.87 million and $10.81 million, respectively.
For a similar quarter, its core net investment income per share stood at $0.47, up 25% from the year-ago quarter. As of September 30, 2023, WHF’s money and money equivalents stood at $10.63 million, compared to $9.51 million as of December 31, 2022.
Street expects WHF’s revenue and EPS for the fiscal 12 months of 2023 (ended December 2023) to increase 17.3% and 15.3% year-over-year to $102.65 million and $1.85, respectively. The corporate surpassed consensus revenue estimates in each of the trailing 4 quarters and consensus EPS estimates in three of the trailing 4 quarters.
The stock has gained 2.8% over the past month to close its last trading session at $12.75. Over the past three months, it has gained 1.8%.
WHF’s solid fundamentals are reflected in its POWR Rankings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
WHF has a B grade for Momentum. Throughout the same industry, it’s ranked #2.
Beyond what we’ve stated above, we’ve also rated the stock for Growth, Value, Stability, Sentiment, and Quality. Get all rankings of WHF here.
Stock #1: Goldman Sachs BDC, Inc. (GSBD)
GSBD is a business development company specializing in middle market and mezzanine investment in private corporations. It seeks to invest between $10 million and $75 million in corporations with EBITDA between $5 million and $75 million annually.
GSBD’s Board of Directors declared a daily fourth quarter dividend of $0.45 per share payable to the shareholders on January 26, 2024. Its annualized dividend rate of $1.80 per share translates to a dividend yield of 12.15% on the present share price. Its four-year average yield is 11.13%.
GSBD’s trailing-12-month money from operations of $355.05 million is 152.6% higher than the industry average of $140.56 million. Its trailing-12-month EBIT and levered FCF margins of 82.29% and 43.34% are 280% and 150.7% higher than the industry averages of 21.65% and 17.29%, respectively.
For the fiscal third quarter that ended September 30, 2023, GSBD’s total investment income and net investment income after taxes increased 26.1% and 19.2% year-over-year to $120.06 million and $72.95 million, respectively.
For a similar quarter, its basic and adjusted earnings per share got here at $0.47, compared to a basic and adjusted loss per share of $0.07 within the prior-year quarter. As of September 30, 2023, GSBD’s money stood at $76.60 million, compared to $39.60 million as of December 31, 2022.
Street expects GSBD’s revenue and EPS within the fiscal first quarter ending March 2024 to increase 6.7% and 17.2% year-over-year to $114.57 million and $0.54, respectively. The corporate surpassed consensus revenue estimates in each of the trailing 4 quarters and consensus EPS estimates in three of the trailing 4 quarters.
The stock has gained 10% over the past nine months to close its last trading session at $14.81. Over the past six months, it has gained 7.6%.
GSBD’s robust prospects are reflected in its POWR Rankings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
GSBD has a B grade for Growth and Momentum. It’s ranked first throughout the same industry.
Click here for the extra POWR Rankings for GSBD (Value, Stability, Sentiment, and Quality).
What To Do Next?
43 12 months investment veteran, Steve Reitmeister, has just released his 2024 market outlook together with trading plan and top 11 picks for the 12 months ahead.
GBDC shares rose $0.06 (+0.39%) in premarket trading Monday. Yr-to-date, GBDC has gained 1.26%, versus a -1.55% rise within the benchmark S&P 500 index through the same period.
Concerning the Writer: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi’s interest during her school days, which led her to change into a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy.
Having earned a master’s degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and higher guide investors.
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