February 26, 2025
Summary
Across the board - and remarkably - SLR Investment (SLRC) met our expectations and those of the analysts in the IVQ 2024.
Net Asset Value Per Share (NAVPS)
We were proved right when we projected a few weeks ago that SLRC's NAVPS would remain unchanged at $18.20 in the IVQ 2024 versus the IIIQ 2024 - an unusual level of accuracy when projecting NAVPS which has so many ingredients. For the year, this metric was up 0.6% - which means essentially unchanged. We are projecting 2025 NAVPS will remain the same as now.
Recurring Earnings (NIIPS)
In terms of earnings, SLRC booked Net Investment Income Per Share (NIIPS) of $0.44 and for the whole year - with rounding - NIIPS comes to the $1.77 projected earlier. That makes SLRC one of the few BDCs to increase its recurring earnings in 2024 over the 2023 level - the peak earnings year during the recent Golden Age of the BDCs. However, that earnings beat is not projected to recur in 2025. The analyst consensus for NIIPS remains $1.65 a share - (7%) down from last year.
Dividends
In 2024, SLRC paid out $1.64 per share in distributions, same as the year before and the year before that. Not surprisingly perhaps, we've projected the BDC will maintain the same payout in 2025. As a result, we were not surprised to see that management announced a IQ 2025 regular dividend of $0.41 which annualizes at $1.64.
Conclusion
Given this quarter's performance, there can be no mystery as to why we've described SLRC as being the "Steadiest Eddy Out There", even more so that other highly consistent BDCs likes Ares Capital (ARCC) and Barings BDC (BBDC). Any BDC investor for whom the best surprise is no surprise - to borrow a line from an old Holiday Inn commercial - SLRC is the place to be.
Valuation
As we write this intra-day on February 26, 2025 SLRC's stock is trading at a price of $17.40, slightly off a 52 week high of $17.85. Give or take a few cents, SLRC is trading near a 3 year high but still at a (4%) discount to its NAVPS. The BDC's price to 2025 earnings is 9.8x - higher than the 8.8x sector PE. The expected book return on equity (ROE) in 2025, when you divide the likely payout by SLRC's NAVPS is 9.0%, versus 11.1% for the sector. (The low ROE is the best explanation we can offer for SLRC trading below book). As to the likely 2025 yield, at today's price that comes to 9.4%, compared to a BDC average still in in the double digits: 11.0%. Finally, given we are assuming no book value growth, the book total return (payout + NAVPS change) is also 9.4%. As you can see, that places the return in our 4th lowest return category - light red.
Recommendation
💡
There's an argument to be made that if you're worrying about what may lie up ahead for the U.S. economy and leveraged lending more generally, SLRC is a good place to hide out. The BDC is invested in 4 different borrower segments and has the most "granular" portfolio of ANY BDC out there, private or public. According to the IVQ 2024 SLRC earnings press release, they are involved with "890 unique issuers, operating in over 110 industries, and resulting in an average exposure of $3.5 million or 0.1% per issuer". Furthermore, for those who like their capital invested high on a borrower's balance sheet, virtually all of SLRC's investments (96%) are in a first lien position. However, SLRC's stock price is up 18% in the past year and 41% since reaching a nadir in September 2022, when all the chatter was about a coming recession. Or, in other words, SLRC is "Too Expensive" for us and has not been selected as a Best Idea. Still, we note that in the "Hybrid BDC" category that we've created, of the 6 BDCs so designated, SLRC offers the 2nd highest book total return, only exceeded by BBDC.