Stellus Capital Investment Corporation (SCM) Bundle
Understanding Stellus Capital Investment Corporation (SCM) Revenue Streams
Understanding Stellus Capital Investment Corporation’s Revenue Streams
Stellus Capital Investment Corporation primarily generates revenue through interest income on debt investments, capital gains, and distributions from its investment securities. The following sections provide a detailed analysis of the company’s revenue streams, including historical trends, contributions from various segments, and significant changes observed in the revenue streams.
Breakdown of Primary Revenue Sources
- Interest Income: For the three months ended September 30, 2024, the company reported interest income of $24.2 million, compared to $25.0 million for the same period in 2023. For the nine months ended September 30, 2024, interest income was $72.2 million, slightly up from $71.9 million in 2023.
- PIK Interest: Payment-in-kind (PIK) interest for the three months ended September 30, 2024, was $0.9 million, down from $0.8 million in 2023. For the nine-month period, PIK interest was $2.5 million, compared to $2.7 million in 2023.
- Miscellaneous Fees: Miscellaneous fees contributed $1.3 million for the three months ended September 30, 2024, consistent with the previous year. However, for the nine months, these fees increased to $4.4 million from $3.2 million in 2023.
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate for Stellus Capital can be summarized as follows:
| Period | Interest Income (in millions) | PIK Interest (in millions) | Miscellaneous Fees (in millions) | Total Revenue (in millions) |
|---|---|---|---|---|
| Q3 2024 | $24.2 | $0.9 | $1.3 | $26.5 |
| Q3 2023 | $25.0 | $0.8 | $1.3 | $27.2 |
| 9M 2024 | $72.2 | $2.5 | $4.4 | $79.1 |
| 9M 2023 | $71.9 | $2.7 | $3.2 | $77.8 |
Contribution of Different Business Segments to Overall Revenue
Overall revenue is primarily driven by interest income, which constitutes the largest portion of total revenue. The contributions from PIK interest and miscellaneous fees, while smaller, show a stable performance with minor fluctuations. The following table illustrates the contribution of each segment for the three and nine months ended September 30, 2024, compared to 2023:
| Revenue Source | Q3 2024 (in millions) | Q3 2023 (in millions) | 9M 2024 (in millions) | 9M 2023 (in millions) |
|---|---|---|---|---|
| Interest Income | $24.2 | $25.0 | $72.2 | $71.9 |
| PIK Interest | $0.9 | $0.8 | $2.5 | $2.7 |
| Miscellaneous Fees | $1.3 | $1.3 | $4.4 | $3.2 |
| Total Revenue | $26.5 | $27.2 | $79.1 | $77.8 |
Analysis of Significant Changes in Revenue Streams
The decrease in total revenue for the three months ended September 30, 2024, compared to the same period in 2023, can be attributed mainly to the decline in interest income, which reflects a decrease in the principal debt outstanding. However, the nine-month period shows a slight increase in overall revenue, indicating growth in the investment portfolio. The company continues to maintain a diversified revenue stream, primarily from interest income, while also benefiting from fees and PIK interest.
A Deep Dive into Stellus Capital Investment Corporation (SCM) Profitability
A Deep Dive into Stellus Capital Investment Corporation's Profitability
Gross Profit Margin: As of September 30, 2024, the gross profit margin stood at 72.1%, compared to 70.9% in the same period of 2023.
Operating Profit Margin: The operating profit margin for the three months ended September 30, 2024, was recorded at 38.7%, which is a decrease from 40.0% in the prior year.
Net Profit Margin: The net profit margin for the nine months ending September 30, 2024, was 30.9%, an increase from 29.1% year-over-year.
Trends in Profitability Over Time
The following table illustrates the trends in profitability metrics over the past five quarters:
| Quarter | Gross Profit Margin (%) | Operating Profit Margin (%) | Net Profit Margin (%) |
|---|---|---|---|
| Q3 2024 | 72.1 | 38.7 | 30.9 |
| Q2 2024 | 71.5 | 39.1 | 31.0 |
| Q1 2024 | 70.8 | 40.5 | 29.7 |
| Q4 2023 | 69.9 | 38.0 | 28.5 |
| Q3 2023 | 70.9 | 40.0 | 29.1 |
Comparison of Profitability Ratios with Industry Averages
As of September 30, 2024, the company's profitability ratios were compared to industry averages:
| Metric | Company Value (%) | Industry Average (%) |
|---|---|---|
| Gross Profit Margin | 72.1 | 65.0 |
| Operating Profit Margin | 38.7 | 35.0 |
| Net Profit Margin | 30.9 | 25.0 |
Analysis of Operational Efficiency
Operational efficiency metrics for the nine months ending September 30, 2024:
| Metric | Value |
|---|---|
| Cost-to-Income Ratio | 45.2% |
| Gross Margin Trend (YoY) | +1.2% |
| Operating Expense Growth (YoY) | 3.5% |
Debt vs. Equity: How Stellus Capital Investment Corporation (SCM) Finances Its Growth
Debt vs. Equity: How Stellus Capital Investment Corporation Finances Its Growth
Debt Levels
As of September 30, 2024, the total debt outstanding for the company includes:
- Senior Secured First Lien: $813,032,551
- Senior Secured Second Lien: $11,933,275
- Unsecured Debt: $6,543,287
The total debt amounts to $831,509,113.
Debt-to-Equity Ratio
The company reported a net asset value of $366,285,287 as of September 30, 2024. This results in a debt-to-equity ratio of:
Debt-to-Equity Ratio = Total Debt / Total Equity = $831,509,113 / $366,285,287 ≈ 2.27
This ratio significantly exceeds the industry average of approximately 1.5, indicating a higher reliance on debt financing compared to peers.
Recent Debt Issuances and Credit Ratings
On January 14, 2021, the company issued $100,000,000 in aggregate principal amount of 4.875% fixed-rate notes due in 2026. The carrying amount of these notes remains approximately $100,000,000 as of September 30, 2024. The company has also maintained a credit facility with a maximum borrowing capacity of $260.0 million, which can be increased to $350.0 million under certain conditions.
Debt Refinancing Activity
As of September 30, 2024, the company had cash and cash equivalents of $38.6 million, which provides liquidity for servicing its debt obligations. The average interest rate on the Notes Payable is 4.8%, with an effective interest rate including fee amortization of 5.3%.
Balancing Debt Financing and Equity Funding
The company emphasizes its strategy of balancing debt and equity to fund its operations effectively. As of September 30, 2024, the total equity raised since inception was $392,392,518, with 27,039,364 shares issued. The company reported distributions per share of $1.21 for the nine months ended September 30, 2024.
| Debt Type | Amount ($) | Interest Rate (%) | Maturity Date |
|---|---|---|---|
| Senior Secured First Lien | 813,032,551 | Floating Rate | Variable |
| Senior Secured Second Lien | 11,933,275 | Floating Rate | Variable |
| Unsecured Debt | 6,543,287 | Floating Rate | Variable |
| Notes Payable | 100,000,000 | 4.875 | March 30, 2026 |
In summary, the company continues to leverage its debt structure to optimize growth while managing equity financing to ensure adequate capital for investment opportunities.
Assessing Stellus Capital Investment Corporation (SCM) Liquidity
Assessing Liquidity and Solvency
Current and Quick Ratios
The current ratio as of September 30, 2024, stood at 0.88, indicating that current assets are less than current liabilities. The quick ratio for the same period is 0.88, as cash and cash equivalents are included in current assets, reflecting a similar liquidity position.
Analysis of Working Capital Trends
As of September 30, 2024, working capital was calculated as follows:
| Item | Amount ($) |
|---|---|
| Current Assets | 38,636,642 |
| Current Liabilities | 43,688,000 |
| Working Capital | (5,051,358) |
The negative working capital indicates potential liquidity concerns as current liabilities exceed current assets.
Cash Flow Statements Overview
For the nine months ended September 30, 2024, the cash flow from operating activities was $3.1 million, while for the same period in 2023, it was a net cash outflow of $(42.4 million).
The breakdown of cash flows is as follows:
| Cash Flow Type | 2024 ($) | 2023 ($) |
|---|---|---|
| Operating Cash Flow | 3,103,961 | (42,434,733) |
| Investing Cash Flow | (112,624,812) | (139,650,422) |
| Financing Cash Flow | 9,400,000 | 13,600,000 |
| Net Cash Flow | (100,120,851) | (168,485,155) |
Potential Liquidity Concerns or Strengths
As of September 30, 2024, cash and cash equivalents totaled $38.6 million, up from $26.1 million at December 31, 2023. This increase signals improved liquidity; however, the ongoing reliance on external financing, including a $100 million Credit Facility and $100 million in Notes Payable, poses a risk if market conditions change.
Unfunded debt commitments as of September 30, 2024, were $38.3 million, indicating potential future cash outflows that may impact liquidity further.
Is Stellus Capital Investment Corporation (SCM) Overvalued or Undervalued?
Valuation Analysis
The valuation analysis of the company involves examining key financial ratios and metrics that provide insight into its market value relative to its earnings, book value, and operational performance.
Price-to-Earnings (P/E) Ratio
The P/E ratio is calculated as:
P/E Ratio = Stock Price / Earnings Per Share (EPS)
As of September 30, 2024, the stock price was $13.54, and the trailing twelve months (TTM) EPS was $1.29. Therefore, the P/E ratio is:
P/E Ratio = $13.54 / $1.29 = 10.50
Price-to-Book (P/B) Ratio
The P/B ratio is calculated as:
P/B Ratio = Stock Price / Book Value Per Share
As of September 30, 2024, the book value per share was $13.26. Thus, the P/B ratio is:
P/B Ratio = $13.54 / $13.26 = 1.02
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is calculated using the formula:
EV/EBITDA = (Market Capitalization + Total Debt - Cash) / EBITDA
As of September 30, 2024:
- Market Capitalization = $366,285,287
- Total Debt = $100,000,000
- Cash = $38,580,261
- EBITDA (based on TTM) = $45,000,000
Thus, the EV/EBITDA ratio is:
EV/EBITDA = ($366,285,287 + $100,000,000 - $38,580,261) / $45,000,000 = 7.26
Stock Price Trends
The stock price trends over the last 12 months indicate the following:
| Date | Stock Price |
|---|---|
| September 2023 | $12.50 |
| December 2023 | $13.00 |
| March 2024 | $12.90 |
| June 2024 | $13.54 |
| September 2024 | $13.54 |
Dividend Yield and Payout Ratios
The dividend yield is calculated as:
Dividend Yield = Annual Dividends Per Share / Stock Price
For the nine months ended September 30, 2024, total dividends declared were $1.20 per share. Therefore, the dividend yield is:
Dividend Yield = $1.20 / $13.54 = 8.85%
The payout ratio is calculated as:
Payout Ratio = Dividends Per Share / Earnings Per Share
Payout Ratio = $1.20 / $1.29 = 93.02%
Analyst Consensus on Stock Valuation
As of the latest analysis, the consensus among analysts is:
- Buy: 5 analysts
- Hold: 3 analysts
- Sell: 1 analyst
The overall sentiment reflects a positive outlook on the stock's potential for appreciation in value based on its financial health metrics.
Key Risks Facing Stellus Capital Investment Corporation (SCM)
Key Risks Facing Stellus Capital Investment Corporation
Overview of Internal and External Risks
The company faces various internal and external risks that could impact its financial health. Key external risks include:
- Industry Competition: The competitive landscape in the investment sector is intense, with numerous firms vying for investments in similar market segments.
- Regulatory Changes: As a publicly traded entity, the company is subject to regulatory scrutiny, particularly from the Securities and Exchange Commission (SEC) and the Small Business Administration (SBA).
- Market Conditions: Economic downturns can affect the performance of portfolio companies, leading to increased defaults on loans and decreased valuations.
Operational, Financial, or Strategic Risks
Recent earnings reports have highlighted several operational and financial risks:
- Investment Activity Variability: The total investments made in the nine months ending September 30, 2024, amounted to $112.6 million, a decrease from $139.7 million during the same period in 2023.
- Net Investment Income: The net investment income for the quarter ending March 31, 2024, was reported at $11.79 million, compared to $10.23 million in the previous quarter.
- Unrealized Depreciation: The net change in unrealized depreciation on investments was $(5.59 million) for the quarter ending March 31, 2024.
Mitigation Strategies
To address these risks, the company has implemented several strategies:
- Diversification of Investments: As of September 30, 2024, the company had a total investment portfolio valued at $909.32 million.
- Liquidity Management: The company reported cash and cash equivalents of $38.58 million as of March 31, 2024, providing a buffer against market volatility.
- Monitoring Credit Quality: The company employs an investment rating system that categorizes investments based on performance and risk, helping to manage exposure to defaults.
| Risk Type | Description | Financial Impact |
|---|---|---|
| Industry Competition | High competition for investments in the middle-market sector. | Potential reduction in market share and profitability. |
| Regulatory Changes | Increased scrutiny from regulatory bodies. | Compliance costs and potential fines. |
| Market Conditions | Economic downturns impacting portfolio performance. | Increased defaults and decreased valuations. |
| Investment Activity Variability | Fluctuations in investment levels. | Impact on income generation. |
| Unrealized Depreciation | Depreciation of investment value. | Reduction in net asset value. |
Future Growth Prospects for Stellus Capital Investment Corporation (SCM)
Future Growth Prospects for Stellus Capital Investment Corporation
Analysis of Key Growth Drivers
Stellus Capital Investment Corporation has identified several key growth drivers that are expected to enhance its financial health and market position in the upcoming years:
- Product Innovations: The company continues to enhance its portfolio through innovative investment strategies that adapt to changing market conditions.
- Market Expansions: Stellus is actively exploring new markets, focusing on middle-market companies which are often underserved.
- Acquisitions: The company has a history of strategic acquisitions aimed at increasing its portfolio value and diversifying its investment base.
Future Revenue Growth Projections and Earnings Estimates
Analysts project that Stellus Capital will see a revenue growth rate of approximately 10% annually over the next five years. This projection is based on the company's consistent investment activity and its ability to leverage its existing portfolio.
For the fiscal year 2024, earnings per share (EPS) are estimated to reach $1.29, reflecting a slight increase from the $1.21 reported in 2023.
Strategic Initiatives or Partnerships That May Drive Future Growth
Stellus Capital has entered into several strategic partnerships aimed at enhancing its market reach and operational efficiency. These include:
- Collaborations with Financial Institutions: Partnerships with banks and other financial entities to access new funding sources.
- Joint Ventures: Engaging in joint ventures with other investment firms to pool resources and knowledge for better investment outcomes.
Competitive Advantages That Position the Company for Growth
Stellus Capital maintains several competitive advantages that are critical for its growth trajectory:
- Strong Portfolio Performance: As of September 30, 2024, the company reported total investments valued at $909.3 million, with a fair value of non-controlled, non-affiliated investments at $900.97 million.
- Robust Cash Position: The company had cash and cash equivalents amounting to $38.58 million as of September 30, 2024, enhancing its liquidity for future investments.
- High Yield on Investments: The weighted average yield on all debt investments was approximately 11.0% as of September 30, 2024.
| Metric | Value (2024) | Value (2023) |
|---|---|---|
| Total Investments | $909.3 million | $908.7 million |
| Cash and Cash Equivalents | $38.58 million | $26.13 million |
| Weighted Average Yield | 11.0% | 11.9% |
| EPS Estimate | $1.29 | $1.21 |
Overall, Stellus Capital Investment Corporation is well-positioned to capitalize on growth opportunities through strategic initiatives, a strong cash position, and a focus on high-yield investments.
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Updated on 16 Nov 2024
Resources:
- Stellus Capital Investment Corporation (SCM) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Stellus Capital Investment Corporation (SCM)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Stellus Capital Investment Corporation (SCM)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.