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Strategies & Market Trends : Dividend investing for retirement

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geoffrey Wren

To: sm1th who wrote (24111)	12/26/2015 5:33:31 PM
From: Max Fletcher	1 Recommendation Read Replies (1) of 34328

FWIW here is an abbreviated Wells Fargo take on PSEC. ? Our View. PSEC continues to offer an attract valuation, currently trading for 0.72x NAV, as well as taking a more shareholder friendly approach with the 31.5MM of share repurchases in the quarter, yet we remain sidelined given PSEC’s recent ratings downgrade and questions regarding the viability of some of their investment strategies (securitization of online loans). PSEC has made an effort to take advantage of their lower valuation by repurchasing 31.5MM shares in the quarter, providing an estimated NAV accretion of $0.04 per share. However in the quarter PSEC was downgraded by S&P to BBB- from BBB, placing specific leverage and asset coverage levels that could trigger a review for further downgrade. This could limit PSEC in the flexibility they have in operating their company while potentially increasing the cost of borrowing. Furthermore, we have concerns about the viability and longevity of their online loans initiatives and the potential returns via securitizations. We are reducing our 2016 estimate from $1.06 to $0.95 and establishing our 2017 estimates of $0.95. ? Downgrade by S&P may increase borrowing costs and inhibit ability to engage in meaningful buybacks. Valuation Range: $8.00 to $8.50 Based on PSEC's Quartile 4 standing we estimate shares should trade between a 12.5% and 13.0% earnings yield on FY2016 NOI estimates. Risks to our valuation range include a significant deterioration in credit quality, dilutive equity issuance, or an extended period of capital markets illiquidity. We rate PSEC Market Perform. We believe that the outsized yield on shares accurately reflects a higher risk portfolio.

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